contestada

If consumers respond to a tax-cut by saving a large portion of the extra disposable income (or using it to reduce their debts), then the tax-cut policy would:__________.
a. shift the AE curve down.
b. cause a reduction in aggregate spending.
c. shift the AE curve up significantly.
d. not have much effect on the aggregate expenditures curve.

Respuesta :

Parrain

Answer: a. shift the AE curve down.

Explanation:

The Aggregate Expenditure curve shows the amount of spending on final goods and services being done in an economy. If people are saving more, this means they are spending less and so the Aggregate expenditure will have to express this.

This will lead to the AE curve shifting down to represent that Aggregate expenditure has fallen and this will also lead to a fall in real GDP as shown on the curve.