Which of the following is true The multipliers of the govern

Which of the following is true?

The multipliers of the government expenditures and taxes are easily calculated by the government.

Fiscal policy is usually not successful because the government cannot control most economic variables.

Fiscal policy cannot fix the economy overnight because tax and spending policies affect aggregate demand after some time.

Consumer spending immediately reacts to income tax cuts.

Both b and c.

Solution

According to economic models consumption is function of disposable income. Disposable income is the total income less taxes. Thus, if there is a change in the tax rate the direct effect is on disposable income and thereafter on consumer spending. Thus it can be said that consumer spending has immediate resposiveness to change in tax cuts.

Consumer spending immediately reacts to income tax cuts - TRUE.