A tax cut shifts aggregate demand a. by more than the amount of the tax cut. b. by the same amount as the tax cut. c. by less than the tax cut. d. None of the above is necessarily correct.

Question

Business

Cassius Sullivan

16 June, 20:02

A tax cut shifts aggregate demand a. by more than the amount of the tax cut. b. by the same amount as the tax cut. c. by less than the tax cut. d. None of the above is necessarily correct.

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Answers (1)

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Long · Answer 1

The correct answer is D. None of the above is necessarily correct about how a tax cut affects aggregate demand.

Explanation:

A tax cut will necessarily affect aggregate demand, since people will have more money in their pockets, which they can spend to consume more products, thus increasing demand. But this is not absolute, since the amount that people use to consume is discretionary for each person and the decision they make regarding their money; that is, many people would be able to use all the money obtained from the tax cut to consume, while others would decide to save part of the money, and even others would choose to save the entire amount.