The reason that the multiplier is smaller if there are variable taxes is that
A)taxes add to government spending, which increases income.
B)people get angry about taxes and decide to work less.
C)tax increases shift the expenditure line upward.
D)part of an increase in income is taken away in taxes.

Question

Quizplus · Accepted Answer

When there are variable taxes, part of an increase in income is taken away in taxes, which reduces the amount of the increase in disposable income available for consumption. Therefore, the multiplier will be smaller compared to when there are no variable taxes.

The Reason That the Multiplier Is Smaller If There Are