CFA Practice Question

There are 341 practice questions for this study session.

CFA Practice Question

In order to stimulate aggregate demand, the government is considering reducing taxes. Keynesian economists would suggest that the government should ______
A. reduce the taxes of wealthy people first because their marginal tax rate is very high.
B. reduce the taxes of middle-class people first because they are the majority.
C. The class of people affected by the tax cut policy is not a concern.
Explanation: Which class of consumers is impacted by the tax cut is not a matter of fiscal policy.

User Contributed Comments 8

User Comment
egghead I thought the bigger group of those who get higher income, the more aggregate demand will be. Any comments?
DannyZhou A seems more reasonable. Maybe it just has nothing to do Keyesian theory?
danrow What??? I never heard of such a thing. Of course the taxes are targeted to those which will cause the biggest impact on the economy. To decide on cut taxes or raise them, they take into consideration the marginal propensity to consume. Those with a higher MPC will have a priority in terms of tax cuts, because this group has the greatest impact in the economy. I think this answer is completely wrong. Period.
Criticull Keynesian economists are out to cut taxes, period. Cut my taxes.
shiva5555 Shouldn't it be poor people because of the principle of the diminishing marginal utility of money?
zed888 keynesian believe cut taxes for everybody because demand is the driving force behind aggregate demand, hence class of people is not of concern
NickGerli I strongly disagree with this question and answer. A Keynesian economist would suggest structuring tax cuts heavily towards lower and middle income individuals because, as danrow said, their MPC is much higher than the wealthy.

Even the CFA book went through how the MPC needs to be factored into the multipliers.
devleena34 keynesian economist suggest reduction of taxes to increase aggregate demand as one of the measures.
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