A) How did consumers spend their 2008 tax cut (News, p. 237 in your textbook)? b) Does it matter what they spend it on, in terms of impact on Aggregate Demand (AD). (Hint: Refer back to Chapter 10 on injections and leakages). Explain your answer and provide your rationale.

The answers are:

a. The people spent their tax exemptions in the market and many spent them to buy stocks.

b. The spending did matter as it was to restart the economy.

Explanation:

The reason to give tax exemptions at the time of the crisis was to lead people to use that money to stabilize the market again and buy things for themselves in the given market economy where the things had cheapened to risen the demand again.

The way that these purchases worked was that the parts of shares that had went down would rise up in value when more and more people would end up buying those shares again and making the value rise thus.