A tax-cut will have a greater effect on equilibrium GDP if the:

Name: A tax-cut will have a greater effect on equilibrium GDP if the:
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Question

Quizplus · Accepted Answer

A tax cut will have a greater effect on equilibrium GDP if the marginal propensity to consume (MPC) is larger, as households are more likely to spend the extra income received from the tax cut. Therefore, a smaller marginal propensity to save (MPS) means that more of the extra income will be spent, leading to a larger increase in GDP.

A Tax-Cut Will Have a Greater Effect on Equilibrium GDP