A tax cut shifts the aggregate demand curve the farthest if
A)the MPC is large because the tax cut is permanent.
B)the MPC is large because the tax cut is temporary.
C)the MPC is small because the tax cut is permanent.
D)the MPC is small because the tax cut is temporary.

Question

Quizplus · Accepted Answer

A tax cut shifts the aggregate demand curve the farthest when the marginal propensity to consume (MPC) is large and the tax cut is perceived as permanent, leading to a greater increase in consumption and aggregate demand.

A Tax Cut Shifts the Aggregate Demand Curve the Farthest