If households view a tax cut as temporary, then the tax cut
A)has no affect on aggregate demand.
B)has more of an affect on aggregate demand than if households view it as permanent.
C)has the same affect as when households view the cut as permanent.
D)has less of an affect on aggregate demand than if households view it as permanent.

Question

Quizplus · Accepted Answer

If households view the tax cut as temporary, they are less likely to increase their spending because they anticipate the taxes will go back up soon. Thus, the tax cut has less of an impact on aggregate demand compared to if households viewed it as a permanent tax cut.

If Households View a Tax Cut as Temporary, Then the Tax