What is the effect of a decrease in the MTR?
A)The MLR will increase and the multiplier will increase.
B)The MLR will decrease and the multiplier will increase.
C)The MLR will increase and the multiplier will decrease.
D)The MLR will decrease and the multiplier will decrease.

Question

Quizplus · Accepted Answer

A decrease in the Marginal Tax Rate (MTR) leads to an increase in disposable income, encouraging spending and investment. This increases the Marginal Propensity to Consume (MPC), reducing the Marginal Propensity to Save (MPS), which is the basis for the Money Multiplier. As a result, the Money Multiplier increases because it is inversely related to the MPS.

What Is the Effect of a Decrease in the MTR