If consumers respond to a tax-cut by saving a large portion of the extra disposable income (or using it to reduce their debts), then the tax-cut policy would
A)shift the AE curve up significantly.
B)shift the AE curve down.
C)cause a reduction in aggregate spending.
D)not have much effect on the aggregate expenditures curve.

Question

Quizplus · Accepted Answer

If consumers save a large portion of the tax-cut or use it to pay off debts, the increase in disposable income does not translate into a significant increase in consumption spending, thus having little effect on the aggregate expenditures curve.

If Consumers Respond to a Tax-Cut by Saving a Large