In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to
A) affect neither aggregate supply nor aggregate demand.
B) increase aggregate demand.
C) reduce aggregate demand.
D) reduce aggregate supply.

Question

Quizplus · Accepted Answer

The tax rebate program would increase households' disposable income, which in turn would increase their consumption. This increase in consumption would lead to an increase in aggregate demand.

In an Effort to Avoid Recession, the Government Implements a Tax