Question

Which of the following best explains why a $7 billion tax cut can lead to a $9 billion increase in consumer spending in the short run?

Answer 1

Below are the choices:

A. Tax cuts increase disposable income, which leads to a higher national income and additional consumer spending.

B. Tax cuts reduce government spending, which encourages consumer spending.

C. Tax cuts reduce interest rates, which stimulates consumer spending and borrowing.

D. Tax cuts increase government transfer payments, which leads to a higher national income and additional consumer spending.

The answer is A.
Also increases government revenue in the long run. Tax cuts increase consumer spending which creates growth, which creates more jobs (tax payers)