A progressive income tax system is particularly effective as an automatic stabilizer because
A)It reduces demand when income falls.
B)In a booming economy,taxpayers move into higher tax brackets,which restrains their spending.
C)During a recession,it causes the budget deficit to fall.
D)It falls more heavily on taxpayers with high MPCs,which stimulates aggregate demand.

Question

Quizplus · Accepted Answer

In a progressive income tax system, tax rates increase as income increases. In a booming economy, taxpayers move into higher tax brackets and are taxed at higher rates. This restrains their spending, reducing aggregate demand, which helps prevent overproduction and inflation. During a recession, taxpayers move into lower tax brackets, which increases their disposable income and stimulates aggregate demand. This makes the progressive income tax system an effective automatic stabilizer.

A Progressive Income Tax System Is Particularly Effective as an Automatic