As a result of the multiplier effect,a tax cut causes a:
A) larger shift of the aggregate demand curve to the left.
B) smaller shift of the aggregate demand curve to the left.
C) larger shift of the aggregate demand curve to the right.
D) smaller shift of the aggregate demand curve to the right.

Question

Quizplus · Accepted Answer

The multiplier effect refers to the idea that a change in one component of aggregate demand (in this case, a tax cut) leads to a more than proportional change in aggregate demand overall. This is because the tax cut increases disposable income, which leads to increased consumption spending, which in turn leads to increased production, employment, and income. This positive feedback loop ultimately leads to a larger shift of the aggregate demand curve to the right, reflecting the increased level of overall demand in the economy.

As a Result of the Multiplier Effect,a Tax Cut Causes