Net tax revenues that rise with national income act as an automatic stabilizer by ________ the marginal propensity to spend and thereby causing the simple multiplier to ________.
A)increasing; increase
B)increasing; decrease
C)decreasing; equal one
D)decreasing; decrease
E)decreasing; increase

Question

Quizplus · Accepted Answer

Net tax revenues that rise with national income act as an automatic stabilizer by decreasing the marginal propensity to spend (because individuals have less disposable income to spend as taxes increase). This in turn causes the simple multiplier to decrease, as the multiplier effect is dampened by the reduced spending.

Net Tax Revenues That Rise with National Income Act as an Automatic