Consider two policies- a tax cut that will last for only for one year and a tax cut that is expected to be permanent. Which will stimulate greater spending by consumers? Which policy will have the greater impact on aggregate demand?
Added by Anthony A.
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A tax cut that lasts for only one year: This policy will likely stimulate some increase in consumer spending, as people will have more disposable income for that year. However, the impact may be limited as consumers might save a portion of their extra income in Show more…
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