Using the simple Keynesian model,consider the case where taxes are lump-sum.Compared to the model without taxes,the investment multiplier in this model will
A)not change.
B)be larger.
C)be smaller.
D)be equal to 1.

Question

Quizplus · Accepted Answer

In the simple Keynesian model, lump-sum taxes do not affect consumption or investment decisions by households or firms, they only reduce disposable income. Therefore, the investment multiplier, which measures the change in equilibrium output resulting from a change in investment, is not affected by lump-sum taxes, and remains the same as in the model without taxes.

Using the Simple Keynesian Model,consider the Case Where Taxes Are