An aide to a U.S.Senator computes the effect on aggregate demand of a $20 billion tax cut.The actual increase in aggregate demand is less than the aide expected.Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand?
A) The actual MPC was larger than the MPC the aide used to compute the multiplier.
B) The aide thought the tax cut would be permanent,but the actual tax cut was temporary.
C) The increase in income shifted money demand less than the aide had anticipated.
D) The increase in income resulted in investment rising more than the aide had anticipated.

Question

Quizplus · Accepted Answer

A temporary tax cut is likely to have a smaller effect on aggregate demand than a permanent one, as consumers may save more of the temporary tax cut rather than spend it.

An Aide to a U