The figure above shows two aggregate expenditure lines.
-In the figure above, what would happen to the size of the multiplier if marginal income tax rates were increased?
A) the multiplier would rise in value
B) the multiplier would fall in value but would not become negative
C) the multiplier would not change in value
D) the multiplier would fall in value and might become negative
E) More information is needed to determine the effect on the size of the multiplier.

Question

The figure above shows two aggregate expenditure lines.
-In the figure above, what would happen to the size of the multiplier if marginal income tax rates were increased?
A) the multiplier would rise in value 
B) the multiplier would fall in value but would not become negative 
C) the multiplier would not change in value 
D) the multiplier would fall in value and might become negative 
E) More information is needed to determine the effect on the size of the multiplier.

Quizplus · Accepted Answer

Increasing marginal income tax rates reduces the disposable income available for consumption, which decreases the marginal propensity to consume and thus reduces the size of the multiplier. However, the multiplier would not become negative.

The Figure Above Shows Two Aggregate Expenditure Lines