A Decrease in Taxes of a Given Amount Will Have

question 39

Multiple Choice

A decrease in taxes of a given amount will have a smaller impact upon the aggregate demand curve than will a rise in government purchases of the same amount because:

• A)the MPC is smaller in the private sector than it is in the public sector
• B)increases in government purchases always tend to reduce private investment
• C)aggregate demand is not affected by tax cuts
• D)some of the tax cut will not be spent
• E)exports rise with an increase in government purchases