A cut in taxes will have the most effect on aggregate demand if it is given to:
A)people with a low marginal propensity to consume.
B)people with a high marginal propensity to consume.
C)everyone in the economy.
D)those who hold a large amount of wealth.

Question

Quizplus · Accepted Answer

People with a high marginal propensity to consume (MPC) are likely to spend a larger portion of any additional income they receive. This means that a tax cut given to them will lead to a greater increase in consumption, which in turn will have a larger impact on aggregate demand. In contrast, people with a low MPC are likely to save a larger portion of any additional income they receive, which means that a tax cut given to them will have a smaller impact on aggregate demand.

A Cut in Taxes Will Have the Most Effect on Aggregate