Tax cuts effectively increase consumption in an economy when the marginal propensity to save is high.

Question

Quizplus · Accepted Answer

Tax cuts effectively increase consumption in an economy when the marginal propensity to consume is high, not when the propensity to save is high. When people have a higher propensity to consume, they are more likely to spend the additional income from a tax cut, resulting in increased consumption and economic growth. However, if people have a higher propensity to save, they are more likely to save the additional income, which would not necessarily result in increased consumption.

Tax Cuts Effectively Increase Consumption in an Economy When the Marginal