A tax change is a determinant of the size of the shift in the aggregate demand curve.The shift in the 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

The households' perceptions about whether the tax change is permanent or temporary will affect their spending behavior and, therefore, the size of the shift in the aggregate demand curve. A permanent tax change may have a larger effect on the aggregate demand curve than a temporary tax change, as households may adjust their spending and saving behavior in the long run. The other options listed do not directly impact the size of the shift in the aggregate demand curve.

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