In general, an increase in the income tax rate will make the aggregate expenditures curve
A) steeper and the multiplier larger.
B) steeper and the multiplier smaller.
C) flatter and the multiplier larger.
D) flatter and the multiplier smaller.

Question

Quizplus · Accepted Answer

An increase in the income tax rate reduces disposable income, leading to a decrease in consumption. This makes the aggregate expenditures curve flatter and reduces the size of the multiplier, as less of each additional dollar of income is spent.

In General, an Increase in the Income Tax Rate Will