Higher tax rates lower the value of the spending multiplier and make the economy more susceptible to shocks.

Question

Quizplus · Accepted Answer

Higher tax rates can reduce disposable income, potentially lowering consumption and demand, but the value of the spending multiplier is more directly related to marginal propensities to consume and save. The economy's susceptibility to shocks is influenced by a variety of factors, including fiscal and monetary policies, not just tax rates.

Higher Tax Rates Lower the Value of the Spending Multiplier