When the government cuts personal income taxes, for instance, it increases households' take home pay. As a result:
A) Households will save all of this additional income, and spend little or nothing on consumer goods.
B) Households will save some of this additional income, but will also spend some of it on consumer goods.
C) Households will not save any of this additional income, but will spend all of it on the stock market.
D) Households will neither save the additional income nor spend it on consumer goods.

Question

Quizplus · Accepted Answer

Households will likely save some of the additional income, but they will also spend some of it on consumer goods. The amount that they save versus spend will depend on their personal financial situation and priorities. However, economic theory suggests that household spending will increase overall, as consumers have more disposable income to use on goods and services.

When the Government Cuts Personal Income Taxes, for Instance, It