During a recession, tax cuts are considered less effective than government expenditure in increasing aggregate demand because _____.
A) governments have complete information about consumer preferences
B) the marginal propensity to save is very low in a recession
C) consumers tend to spend less and save more during uncertain business conditions
D) market-based economies are the best means of allocating resources

Question

Quizplus · Accepted Answer

During a recession, consumers are more likely to save any additional income they receive rather than spend it due to uncertainty about the future. This behavior reduces the effectiveness of tax cuts in stimulating demand compared to direct government spending, which goes directly into the economy.

During a Recession, Tax Cuts Are Considered Less Effective Than