A Cut in Taxes Will Have the Most Effect on Aggregate

question 253

Multiple Choice

A cut in taxes will have the most effect on aggregate demand if it is given to:

• A)people with a low marginal propensity to consume.
• B)people with a high marginal propensity to consume.
• C)everyone in the economy.
• D)those who hold a large amount of wealth.

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Definitions:

Payback Period

The timeframe required for an investment to generate cash flows sufficient to recover its initial cost.

AAR

Average Annual Return, which measures the average return on an investment over a multi-year period.

Multiple Rates Of Return

One potential problem in using the Internal Rate of Return method if more than one discount rate makes the Net Present Value of an investment zero.

Net Present Value

A process that evaluates how the worth of a dollar now compares to its worth in the future, factoring in both inflation and investment returns.