Question

Permanent tax cuts shift the AD curveSelect one:a. farther to the left than do temporary tax cuts.b. not as far to the right as do temporary tax cuts.c. farther to the right than do temporary tax cuts.d. not as far to the left as do temporary tax cuts.Jump to...

Answer 1

Answer:

farther to the right than temporary tax cuts

Explanation:

The permanent tax cuts have more impact on consumption spending than temporary one. A permanent tax cut raises the expected lifetime wealth and increases autonomous consumption, thus leading to an upward shift of the consumption function. Consequently the permanent tax cuts shift the AD curve farther to the right compared to the temporary tax cuts.