If Congress Passed a One-Time Tax Cut in Order to Stimulate

question 59

Multiple Choice

If Congress passed a one-time tax cut in order to stimulate the economy in 2014,and tax rate levels returned to their pre-2014 level in 2015,how should this tax cut affect the economy?

• A)The tax cut would increase consumption spending less than would a permanent tax cut.
• B)The tax cut would increase consumption spending more than would a permanent tax cut.
• C)The tax cut would increase consumption spending by the same amount as would a permanent tax cut.
• D)The tax cut would raise the price level in 2014.

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Definitions:

Market Price

The price of a commodity when sold in a competitive marketplace, determined by the supply and demand for the commodity.

Profit

The financial gain realized when the revenue generated from business activities exceeds the expenses, costs, and taxes needed to sustain the business.

Short-Run

A period in which at least one factor of production is considered fixed, affecting the ability of businesses to change production levels.

Marginal Cost Curve

A graphical representation showing how the cost of producing one more unit of a good varies with the level of production.