A tax increase has a smaller impact on the economy than does a decrease in government spending of the same magnitude because:
A) Congress is slow in passing tax increases.
B) consumers pay for part of the tax increase by reducing their saving.
C) tax changes have more of a direct impact on income than does an equivalent change in government spending.
D) fiscal policy is weaker than monetary policy.

Question

Quizplus · Accepted Answer

Consumers may adjust their savings to accommodate tax increases, which can mitigate the immediate impact on consumption and, consequently, on the economy.

A Tax Increase Has a Smaller Impact on the Economy