A Temporary Tax Cut Would Not Be Effective in Stimulating

question 135

Multiple Choice

A temporary tax cut would not be effective in stimulating aggregate demand if

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

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Definitions:

Taxable Income

The portion of an individual's or organization's income used to calculate how much tax will be owed to the government.

Federal Government

The national government of a federated state, which holds the authority to govern the country at a national or federal level, distinct from regional or local governments.

Government Dollar

Currency issued by a country's government, representing the medium of exchange accepted for transactions and as payment for debts.

Standard Deduction

A preset reduction in taxable income on a federal income tax return, not requiring itemization of individual deductions.