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

Quizplus · Accepted Answer

A tax cut increases disposable income, which leads to an increase in aggregate demand. However, the increase in aggregate demand is not necessarily equal to the amount of the tax cut. The multiplier effect can cause the increase in aggregate demand to be greater than the tax cut, or other factors can cause it to be less than the tax cut.

A Tax Cut Shifts Aggregate Demand