Which of the Following Events Would Likely Cause the Largest

question 70

Multiple Choice

Which of the following events would likely cause the largest reduction in current consumption?

• A)a permanent reduction in annual salary of $2000
• B)a one-time tax increase of $4000
• C)a one-time reduction in income (e.g. a bonus)of $4000
• D)both B and C

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Definitions:

Consumption Spending

The expenditure by households on goods and services, excluding purchases of new housing, which is a key component in calculating a country's gross domestic product (GDP).

Permanent Tax

A tax implemented with no predetermined end date, often considered to be indefinitely applied.

Temporary Tax

A temporary tax is a levy imposed by a government for a specific period before it is automatically revoked or reassessed.

Major Export

The primary good or service sold by a country to foreign markets.