An increase in the marginal tax rate
A) increases the expenditure multiplier.
B) decreases the expenditure multiplier but cannot make it negative.
C) has no effect on the expenditure multiplier.
D) can either increase or decrease the expenditure multiplier.
E) decreases the expenditure multiplier and can make it negative.

Question

Quizplus · Accepted Answer

An increase in the marginal tax rate decreases disposable income, which in turn decreases consumption spending. This results in a decrease in the expenditure multiplier. However, the multiplier cannot become negative as it is always greater than or equal to 1.

An Increase in the Marginal Tax Rate