A tax cut initially
A)increases consumption expenditure by an amount greater than the tax cut.
B)increases consumption expenditure by an amount equal to the tax cut.
C)increases consumption expenditure by an amount that is less than the value of the tax cut.
D)has no effect on consumption expenditure.
E)reduces consumption expenditure by an amount that is less than the value of the tax cut.

Question

Quizplus · Accepted Answer

A tax cut increases disposable income, leading to increased consumption. However, not all of the additional disposable income is spent; some is saved, making the increase in consumption less than the tax cut.

A Tax Cut Initially