Which of the following best completes this statement: "Once we include a proportional income tax in the model of aggregate expenditure and equilibrium real GDP, then….:"

Question

Quizplus · Accepted Answer

Including a proportional income tax in the model reduces the multiplier effect because a portion of income goes to taxes rather than being spent or saved by households. This means that any change in spending leads to a smaller change in GDP than it would without the tax, thus lowering the multiplier.

Which of the Following Best Completes This Statement: "Once We