If the government lowers tax rates and tax revenue falls by $100 million,we can expect consumption spending to ________ and equilibrium output to ________.

Question

Quizplus · Accepted Answer

Lowering tax rates increases disposable income, leading to higher consumption spending. This increase in consumption will have a multiplied effect on equilibrium output, causing it to increase by more than the initial $100 million decrease in tax revenue.

If the Government Lowers Tax Rates and Tax Revenue Falls