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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Consider two policies—a tax cut that will last for only one year and a tax cut that is expected to be permanent. Which policy will stimulate greater spending by consumers? Which policy will have the greater impact on aggregate demand? Explain.

To determine

Impact of tax cut.

Explanation

When tax cut is temporary, it will have little effect on consumer spending and aggregate demand as temporary reduction in tax adds only a little to the capital stock of consumers.

On the other hand, when the tax cut is permanent, it wi...

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