In the traditional Keynesian model, an increase in current taxes
A)increases disposable income but does not affect consumption.
B)decreases both disposable income and consumption.
C)decreases disposable income but increases consumption.
D)has no effect on either disposable income or consumption.

Question

Quizplus · Accepted Answer

In the traditional Keynesian model, an increase in current taxes decreases disposable income, which in turn decreases consumption. This is because the model assumes that consumption depends on disposable income, which is the income that households have available to spend or save after paying taxes. Therefore, an increase in taxes reduces disposable income and, as a result, reduces consumption.

In the Traditional Keynesian Model, an Increase in Current Taxes