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Author Question: What will be the effect of a tax cut on consumption if consumption offers diminishing returns? ... (Read 54 times)

Collmarie

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on: Jun 30, 2018
What will be the effect of a tax cut on consumption if consumption offers diminishing returns?
 
  What will be an ideal response?

Question 2

Which of the following is NOT included in the money supply when the transactions approach is used?
 
  A) currency B) traveler's checks
  C) money market deposit accounts D) transaction deposits


macmac

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Reply #1 on: Jun 30, 2018
Answer to Question 1

If consumption offers diminishing returns, consumers may hold back on spending their tax cuts. They will spread their spending over the long term rather than consuming the proceeds of the tax cut all at once. Thus, consumption may not increase immediately.

Answer to Question 2

C


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