When taxes are reduced, disposable income _____ and consumption spending _____ multiplied by the change in disposable income.

Name: When taxes are reduced, disposable income _____ and consumption spending _____ multiplied by the change in disposable income.
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Question

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When taxes are reduced, disposable income rises because individuals have more after-tax income. Consumption spending rises by the marginal propensity to consume, which is the fraction of additional income that is spent on consumption.

When Taxes Are Reduced, Disposable Income _____ and Consumption Spending