If consumers save the entire amount of the increase in their disposable income due to a tax cut,the tax cut will ________.
A) have no effect on GDP
B) lead to an increase in GDP
C) lead to a decrease in GDP
D) lead to an increase in the current account deficit

Question

Quizplus · Accepted Answer

When consumers save the entire amount of the increase in their disposable income due to a tax cut, they do not increase their spending, which means that there is no increase in aggregate demand. Since GDP is a measure of the total output of goods and services, there will be no increase in GDP.

If Consumers Save the Entire Amount of the Increase in Their