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When Would a Temporary Tax Cut Be Ineffective in Stimulating

Question 36

Multiple Choice

When would a temporary tax cut be ineffective in stimulating aggregate demand?  


A)  if the MPC is relatively high 
B)  if the economy is in a recessionary gap 
C)  if the short-run aggregate supply curve is relatively flat 
D)  if people base consumption decisions on their level of permanent income

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