If federal taxes are cut by $10 billion,aggregate demand
A)increases by $10 billion.
B)increases by $10 billion multiplied by the government expenditure multiplier.
C)increases by $10 billion multiplied by the tax multiplier.
D)decreases by $10 billion.
E)decreases by $10 billion multiplied by the tax multiplier.

Question

Quizplus · Accepted Answer

A tax cut increases disposable income, leading to increased consumption, which raises aggregate demand by the amount of the tax cut multiplied by the tax multiplier.

If Federal Taxes Are Cut by $10 Billion,aggregate Demand