The effect of a decline in taxes on the level of income will differ somewhat from an increase in government expenditures of the same amount because:
A) Tax declines tend to be more expansionary
B) Households may not spend all of an increase in disposable income
C) The MPC which applies to the incomes of households always exceeds the MPC which applies to business incomes
D) The multiplier is high when the MPS is low

Question

Quizplus · Accepted Answer

A decline in taxes increases disposable income, but households may save a portion of this increase, leading to a smaller impact on income compared to direct government spending.

The Effect of a Decline in Taxes on the Level