A change in taxes or a change in government transfers affects consumption through its effect on:
A) autonomous consumption.
B) the marginal propensity to save.
C) disposable income.
D) government spending.

Question

Quizplus · Accepted Answer

Taxes and government transfers directly affect disposable income, which is the income available for consumption. A change in disposable income will lead to a change in consumption, as individuals will adjust their spending based on their available income. Autonomous consumption and government spending are not directly affected by changes in taxes or transfers. While the marginal propensity to save may be impacted by a change in disposable income, it is not the most direct way that changes in taxes or transfers affect consumption.

A Change in Taxes or a Change in Government Transfers