A cut in tax rates affects equilibrium real GDP through two channels: ________ disposable income and consumer spending, and ________ the size of the multiplier effect.
A)decreasing; increasing
B)decreasing; decreasing
C)increasing; increasing
D)increasing; decreasing

Question

Quizplus · Accepted Answer

A cut in tax rates increases disposable income and consumer spending, which in turn increases the size of the multiplier effect, leading to a larger impact on equilibrium real GDP.

A Cut in Tax Rates Affects Equilibrium Real GDP Through