Question

Cutting taxes

A) will lower disposable income and lower spending.
B) will lower disposable income and raise spending.
C) will raise disposable income and lower spending.
D) will raise disposable income and raise spending.

Answer 1

D) will raise disposable income and raise spending

Step-by-step explanation:

Base on the scenario been described in the question, cutting the taxes will raise the income been depose and also increase the spending rate. This is so because by cutting the taxes, individual will have more money when the tax is been cut.

We can define A tax cut is a decrease in the rate of tax that is been charged by a government. The immediate effects of a tax cut are a government reduction in the real income and an raise in the real income of the people whose tax rates have been reduced.

Answer 2

The answer is D) will raise disposable income and raise spending

Step-by-step explanation:

When taxes are cut disposable income increases as there is less income used to pay taxes. If there is a higher amount of disposable income available then spending will increase as well as spending appetite.

Cutting taxes is a easy way to stimulate spending in an economy.

The correct answer is therefore D) will raise disposable income and raise spending.

Cutting taxes can also increase aggregate demand which can lead to higher economic growth as well.