If the Commonwealth government cuts taxes by $10 billion, aggregate demand

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When the government cuts taxes by a certain amount, it effectively puts more money into the hands of consumers and businesses, which can then be spent or invested, leading to an increase in aggregate demand. The actual increase in aggregate demand is not just the amount of the tax cut itself but is amplified by the tax multiplier effect. This multiplier effect occurs because the initial increase in disposable income leads to increased spending, which then leads to further increases in income and spending in a virtuous cycle.

If the Commonwealth Government Cuts Taxes by $10 Billion, Aggregate