A Temporary Tax Cut Is Not Likely to Be Effective

question 73

Multiple Choice

A temporary tax cut is not likely to be effective in stimulating aggregate demand if _____

• A) the tax cut is large.
• B) the MPC is relatively high.
• C) the economy experiences a contractionary gap.
• D) the short-run aggregate supply curve is relatively flat.
• E) people base consumption decisions on the level of their permanent income.

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Definitions:

Semi-Annually Compounded

Describes the methodology of applying interest to a principal amount two times within a year.

Quarterly Payments

Payments made four times a year, typically for loans, mortgages, or other financial products.

Monthly Payments

Regular amounts paid each month towards the repayment of a loan or debt.

Nominal Rate

The interest rate stated on a loan or investment agreement, not accounting for inflation or other factors that affect the real rate of return.