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, taxpayers move into higher tax brackets during a booming economy, which restrains their spending. This helps to prevent overheating of the economy and inflation. During a recession, the opposite occurs as people move into lower tax brackets, which increases their disposable income and encourages spending. This helps to stimulate aggregate demand and reduce the severity of the recession.

A Progressive Income Tax System Is Particularly Effective as an Automatic