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Taxation as a Tool

A cut in dire...

Question

A cut in direct taxes on households’ income:

A

Has no effect

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B

Shifts the aggregate demand curve to the left

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C

Shifts the aggregate demand curve to the right

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D

Moves the economy along the aggregate demand curve

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Solution

The correct option is C
Shifts the aggregate demand curve to the right

A cut in direct taxes causes a rightward shift of the AD curve.

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