The effects of tax cuts or government spending dissipate and each additional change in consumption and income becomes smaller and smaller because
A)some of the increase in income will be lost through taxation.
B)some of the increase is saved and does not result in an increase in consumer demand.
C)some of the increase in consumption will be an additional demand for imported goods.
D)All of the above.
E)None of the above.

Question

Quizplus · Accepted Answer

All of the given options are true and contribute to the diminishing effects of tax cuts or government spending on consumption and income. Some of the increased income is lost through taxation, some is saved and does not result in increased demand, and some is spent on imported goods, which does not contribute to domestic economic growth. As a result, with each additional change in consumption and income, the initial impact is reduced.

The Effects of Tax Cuts or Government Spending Dissipate and Each