A tax change is a determinant of the size of the shift in the aggregate demand curve. The shift in aggregate demand curve will be affected by
A) households' perceptions about whether the tax change is on income or on goods.
B) households' perceptions about whether the tax change is local or national.
C) households' perceptions about whether the tax change is good or bad.
D) households' perceptions about whether the tax change is permanent or temporary.

Question

Quizplus · Accepted Answer

Household perceptions about whether the tax change is permanent or temporary can significantly affect their spending behavior, which in turn will affect the size of the shift in the aggregate demand curve. If households perceive a tax change to be permanent, they are more likely to adjust their consumption behavior, leading to a larger shift in the aggregate demand curve. If they perceive the tax change to be temporary, their consumption behavior may not change as much, leading to a smaller shift. The other options are not relevant determinants of the size of the shift in the aggregate demand curve.

A Tax Change Is a Determinant of the Size of the Shift