A personal tax cut of $50 billion will affect income differently than an increase in government spending by $50 billion because:
A) The increase in government spending will produce a political business cycle
B) The increase in government spending is less expansionary than the increase in taxes
C) Households may save part of the additional income from the tax cut
D) Households may consume more than the additional income from the tax cut

Question

Quizplus · Accepted Answer

A personal tax cut may lead households to save a portion of the additional income, reducing the immediate impact on consumption compared to direct government spending, which is fully injected into the economy.

A Personal Tax Cut of $50 Billion Will Affect Income