Other things being equal,an economy with a higher net tax rate will have a ________ marginal propensity to spend and thus a ________ AD curve compared to an economy with a lower net tax rate.
A)lower; steeper
B)higher; flatter
C)higher; steeper
D)lower; rightward shift of the
E)lower; leftward shift of the

Question

Quizplus · Accepted Answer

A higher net tax rate means individuals have less disposable income to spend, which leads to a lower marginal propensity to spend. This in turn leads to a steeper aggregate demand curve, as each additional dollar spent has a smaller impact on overall demand.

Other Things Being Equal,an Economy with a Higher Net Tax