If wealthy U. S. consumers save most of their tax cut, this means that, compared to government spending changes,

- tax changes would have a higher multiplier effect.

- tax changes would have a weaker multiplier effect.

- government spending would have a weaker multiplier effect.

- U. S. consumers would spend all of their tax cut.

Question

Business

Valentin Holland

16 July, 09:25

If wealthy U. S. consumers save most of their tax cut, this means that, compared to government spending changes,

- tax changes would have a higher multiplier effect.

- tax changes would have a weaker multiplier effect.

- government spending would have a weaker multiplier effect.

- U. S. consumers would spend all of their tax cut.

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Answers (1)

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Raelynn Davis · Answer 1

Answer: Option (b) is correct.

Explanation:

Correct Option: Tax changes would have a weaker multiplier effect.

If there is a tax cut by the government, it is generally results in higher aggregate demand. But here, the U. S. consumers save most of the tax cut which means that tax changes would have a weaker multiplier effect as compared to the government spending changes.

This is due to the saving component because people are not demanding for the goods as much as they demanding for the goods when the tax cut is not saved.

Therefore, tax cut would have a weaker multiplier effect as compared to government spending changes.