Question

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? Explain.

Answer 1

Answer:

A tax-cut  that is expected to be permanent will have greater impact

Explanation:

The tax- cut that is relied upon to be permanent will lead to more spending by buyers and it will greatly affect total interest.  In such a case that a family expects a tax- cut to be long-term they will see it as a considerable addition because now they can buy and spend. Likewise, it will increase the aggregate demand by an enormous sum.