Question

Permanent tax cuts make the aggregate demand decrease more than do temporary tax cuts decrease not...

Permanent tax cuts make the aggregate demand

decrease more than do temporary tax cuts

decrease not as much as do temporary tax cuts.

increase more do temporary tax cuts.

increase not as much as do temporary tax cuts.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1


The impact of fiscal policy on aggregate demand in terms of administration of tax cuts depends on the nature of tax cuts. In other words, whether the tax cuts are temporary or permanent.

When tax cuts are temporary then this encourages the households to save more out of the increase in income due to tax cuts as they believe that they will have to pay higher taxes in future. On the other hand, when tax cuts are permanent then households have no fear of increased taxes in future and thus they save less.

So, consumption expenditure tends to be higher in case the tax cuts are permanent relative to when tax cuts are temporary.

Thus,

Permanent tax cuts make the aggregate demand increase more than do temporary tax cuts.

Hence, the correct answer is the option (3).

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Tax cuts will likely affect aggregate demand and aggregate supply. Does it matter which is affected...
Tax cuts will likely affect aggregate demand and aggregate supply. Does it matter which is affected more? Explain in terms of the AD-AS framework.
12. An aide to a U.S. Congressman computes the effect on aggregate demand of a $20...
12. An aide to a U.S. Congressman 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...
Discuss the results of aggregate demand increasing more than potential GDP and the results where aggregate...
Discuss the results of aggregate demand increasing more than potential GDP and the results where aggregate demand curve increase less than potential GDP
How do you know if book-tax differences are favorable/unfavorable and temporary/permanent? Is there some certain situations...
How do you know if book-tax differences are favorable/unfavorable and temporary/permanent? Is there some certain situations that make it always the same or what differentiates them? Can you give examples? does it matter if its negtive or positive ect
An increase in interest rates will -decrease Aggregate Demand -increase Long run Aggregate Supply -decrease Long...
An increase in interest rates will -decrease Aggregate Demand -increase Long run Aggregate Supply -decrease Long run Aggregate Supply -increase Short run Aggregate Supply
The interest rate effect on aggregate demand indicates that a(n): A. Decrease in the price level...
The interest rate effect on aggregate demand indicates that a(n): A. Decrease in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending B. Decrease in the price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending C. Increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending D. Increase in the supply of money...
A decrease in tax rates has no effect on the AD curve. causes the AD curve...
A decrease in tax rates has no effect on the AD curve. causes the AD curve to shift left. causes the AD curve to shift right. has only a short-term effect on real GDP. usually leads to a reduction in potential GDP. 2. To reduce the size of economic fluctuations, the government could make fewer permanent changes in government spending. change government purchases often to encourage a shift of the aggregate demand curve. increase spending during a recession and decrease...
What is an appropriate government response to shift aggregate demand back to ADf? Select all that...
What is an appropriate government response to shift aggregate demand back to ADf? Select all that apply: enact tax increases increase direct government spending decrease direct government spending enacting tax cuts
Unemployment would increase and prices would decrease if A. aggregate demand shifted left B. aggregate demand...
Unemployment would increase and prices would decrease if A. aggregate demand shifted left B. aggregate demand shifted right C. aggregate supply shifted left D. aggregate supply shifted right
Show on graph (using the aggregate demand and aggregate supply model) the effects of: A decrease...
Show on graph (using the aggregate demand and aggregate supply model) the effects of: A decrease in aggregate demand/recession (show what happens both in the short run and in the long run and make sure you explain your results)
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT