If the tax rate increases,
A) the marginal propensity to expend will increase.
B) autonomous spending will increase.
C) the marginal propensity to expend will decrease.
D) autonomous spending will decrease.

Question

Quizplus · Accepted Answer

DWhen the tax rate increases, disposable income decreases, leading to a decrease in the marginal propensity to expend (C) because individuals have less income to spend on additional goods and services. Additionally, autonomous spending, which is spending not influenced by current income levels, will also decrease (D) because higher taxes reduce the overall amount of income available for consumption and investment, irrespective of income levels.

If the Tax Rate Increases