When consumers receive tax rebates and use them to pay down debt rather than to increase spending:
A) the resulting fiscal stimulus will be much larger than the initial tax rebate.
B) the resulting fiscal stimulus will be much smaller than the initial tax rebate.
C) the resulting fiscal stimulus will be the same size as the initial tax rebate.
D) it is impossible to say whether the resulting fiscal stimulus will be larger or smaller.

Question

Quizplus · Accepted Answer

When consumers use tax rebates to pay off debt instead of spending, the money does not circulate in the economy and does not result in significant fiscal stimulus. Therefore, the resulting fiscal stimulus will be much smaller than the initial tax rebate.

When Consumers Receive Tax Rebates and Use Them to Pay