A change in tax rates
A) has a less complicated effect on GDP than a tax cut of a fixed amount.
B) has a larger multiplier effect the smaller the tax rate.
C) will not affect disposable income.
D) will not affect the size of the multiplier.

Question

Quizplus · Accepted Answer

A change in tax rates affects the marginal propensity to consume, which in turn affects the size of the multiplier. A smaller tax rate means a larger portion of income is available for consumption, leading to a larger multiplier effect.

A Change in Tax Rates