If a government wants to pursue an expansionary ﬁscal policy, then a tax cut of a certain size will be more expansionary when the
A) economy's MPS is small.
B) economy's MPS is large.
C) economy's MPC is small.
D) unemployment rate is low.

Question

Quizplus · Accepted Answer

A tax cut will be more expansionary when the economy's MPS (Marginal Propensity to Save) is small, as it means that consumers are likely to spend a larger proportion of their income rather than save it. This will increase aggregate demand and stimulate economic growth.

If a Government Wants to Pursue an Expansionary ﬁScal Policy