If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary when the:

Question

Quizplus · Accepted Answer

A smaller MPS (marginal propensity to save) indicates that people are more likely to spend the additional income from a tax cut rather than save it. This leads to a larger increase in consumption, which in turn stimulates economic growth.

If a Government Wants to Pursue an Expansionary Fiscal Policy