a. Explain how the income tax cut influences agggregate demand. Draw a graph to illustrate the intended effect.

b. Explain why the effect of tax cuts depends on who receives them.

Suppose the Trump tax cuts remain in place.
Compared to a situation with no tax change, the Tax Policy Center estimates that aftertax incomes of households in the bottom fifth will rise 0.4%; the second fifth, up 0.9%; the middle fifth, up 1.3%; fourth fifth, up 1.4%; and the top fifth up 2.3%.

Fact: Middle and low income earners spend almost all their disposable incomes. High income earners save a significant part of their disposable incomes.