Which of the Following Best Explains Why the Federal Tax

question 91

Multiple Choice

Which of the following best explains why the federal tax rebates in 2008 and 2009 had almost no effects on aggregate demand?

• A)According to the permanent income hypothesis, those one-time tax rebates did not affect consumption because they did not change taxpayers' permanent income.
• B)According to the permanent income hypothesis, those one-time tax rebates did not affect consumption because taxpayers did not believe the rebates would occur.
• C)According to Ricardian equivalence theorem, those tax rebates did not affect aggregate demand because they were accompanied by more government spending.
• D)According to Ricardian equivalence theorem, those tax rebates did not affect aggregate demand because there were no direct expenditure offsets.

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Definitions:

Semiannually

A term that describes an event or action that occurs twice a year, typically every six months.

Bond Premium

The amount by which the selling price of a bond exceeds its face value, typically resulting from interest rates lower than the bond's coupon rate.

Interest Payment

The payment made to creditors or bondholders as compensation for the use of borrowed money, typically calculated as a percentage of the principal.

Journal Entry

A record of a financial transaction in an accounting system, noting the accounts and amounts debited and credited.