Suppose that Congress enacts a significant tax cut with the expectation that this action will stimulate aggregate demand and push up real GDP in the short run. In fact, however, neither real GDP nor the price level changes significantly as a result of the tax cut. This outcome can be explained by all of the following, except one. Which one of the following is the exception? A. The Ricardian Equivalence Theorem. B. Indirect crowding out. C. Automatic stabilizers. D. The Fed's contractionary monetary policy.
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