For each $1 of a tax cut, economists expect consumption to
A)decrease by $1.
B)decrease by less than $1.
C)increase by less than $1.
D)increase by $1.

Question

Quizplus · Accepted Answer

Economists generally expect that consumption will increase by less than $1 for each $1 of a tax cut, based on the concept of the marginal propensity to consume. This means that people will not spend all of the extra money they have, but instead will save some of it or use it to pay off debt. Therefore, the increase in consumption will be less than the amount of the tax cut.

For Each $1 of a Tax Cut, Economists Expect Consumption