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What Would Be the Effect of a Cut in Taxes

question 22

Essay

What would be the effect of a cut in taxes of $100 billion on the economy if the marginal propensity to consume were .9? Explain why this policy is much different from simply having the government initiate a $100 billion spending program. Support your answer with specific calculations.


Definitions:

Parol Evidence Rule

A legal rule that prevents the introduction of evidence outside the written contract that would alter or contradict its terms.

Integrated Contracts

Legal documents that combine all agreements and terms related to a particular deal or relationship into a single, comprehensive document.

Merger Clause

A provision in a contract stating that the agreement is the complete and final agreement between the parties, superseding all oral or written agreements made prior.

Statute Of Frauds

A legal doctrine requiring certain contracts to be in writing and signed by the parties involved, to be enforceable.

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