If the marginal propensity to save in a closed economy is 0.25 and a lump-sum tax is imposed, the slope of the economy's aggregate expenditures schedule will be:
A).25.
B)less than the slope before the imposition of the tax.
C)greater than the slope before the imposition of the tax.
D).75.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is 1 - marginal propensity to save (MPS), so MPC = 0.75. The slope of the aggregate expenditures schedule is equal to the MPC, which is 0.75. A lump-sum tax does not change the MPC, so the slope remains 0.75.

If the Marginal Propensity to Save in a Closed Economy