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

question 219

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 lower the price level in 2014.

---

Definitions:

Total Costs

The complete amount of expenses incurred by a business or project, including both fixed and variable costs.

Money Market Instruments

Short-term financial instruments typically with high liquidity and very low risk.

Default Rates

The frequency at which borrowers fail to make payments on their loans or securities according to the terms agreed upon.

Maturity

The date on which the principal amount of a financial instrument, such as a bond or loan, is due to be paid in full.