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Alinara [238K]
3 years ago
8

Suppose that Congress enacts a significant tax cut with the expectation that this action will stimulate aggregate demand and pus

h up real GDP in the short run. In fact, however, neither real GDP nor the price level changes significantly as a result of the tax cut. What might account for this outcome?
Social Studies
1 answer:
jeka943 years ago
5 0

Tax reductions mean that more disposable income is available to people. But the increase in consumption depends on the marginal propensity to consume (MPC). If the MPC is too low, consumers will not consume the additional income made available to them through tax cuts.

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