In the Keynesian-cross model,assume that the analysis of taxes is changed so that taxes,T,are made a function of income,as in T = T + tY,where T and t are parameters of the tax code and t is positive but less than 1.As compared to a case where t is zero,the multiplier for government purchases in this case will:
A) not change.
B) be smaller.
C) be bigger.
D) be equal to 1.

Question

Quizplus · Accepted Answer

When taxes are a function of income, the marginal propensity to consume out of disposable income decreases, leading to a smaller multiplier effect for government purchases.

In the Keynesian-Cross Model,assume That the Analysis of Taxes Is