Consider a macro model with a constant price level and demand-determined output.A rise in the net tax rate ________ the simple multiplier and ________ equilibrium national income.
A)lowers; has no effect on
B)lowers; lowers
C)lowers; raises
D)raises; raises
E)raises; has no effect on

Question

Quizplus · Accepted Answer

An increase in the net tax rate would decrease disposable income and therefore decrease consumption spending, which is a component of aggregate demand. This decrease in aggregate demand would lead to a lower equilibrium national income. The simple multiplier would also be lowered, as the decrease in autonomous consumption would lead to a smaller increase in equilibrium national income for a given increase in autonomous spending.

Consider a Macro Model with a Constant Price Level and Demand-Determined