The following information is for a closed economy:

-Refer to the above information.The addition of a $100 billion lump-sum tax:
A) reduces the MPC and increases the multiplier.
B) increases the MPC and decreases the multiplier.
C) increases both the MPC and the multiplier.
D) has no effect on either the MPC or the multiplier.

Question

The following information is for a closed economy:
 
-Refer to the above information.The addition of a $100 billion lump-sum tax:
A) reduces the MPC and increases the multiplier. 
B) increases the MPC and decreases the multiplier. 
C) increases both the MPC and the multiplier. 
D) has no effect on either the MPC or the multiplier.

Quizplus · Accepted Answer

A lump-sum tax does not affect the marginal propensity to consume (MPC) or the multiplier directly, as it is a fixed amount and does not change with income levels.

The Following Information Is for a Closed Economy