If the tax rate decreases, the marginal propensity to expend will _______ and the value of the multiplier will ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question

Quizplus · Accepted Answer

A decrease in the tax rate increases disposable income, leading to an increase in the marginal propensity to expend. This, in turn, increases the value of the multiplier, as the multiplier effect is stronger when more of each dollar of income is spent.

If the Tax Rate Decreases, the Marginal Propensity to Expend