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:

Straight-Line Method

A method of calculating depreciation of an asset, which evenly spreads the cost over its useful life.

Salvage Value

The estimated resale value of an asset at the end of its useful life, used in calculating depreciation expenses.

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence.

Useful Life

The estimated duration of time an asset is expected to remain functional and economically feasible for its intended use.