According to the Keynesian approach, a decrease in taxes
A) will increase consumption exactly by the amount of the taxes.
B) will increase consumption by an amount of less than the change in taxes.
C) will not impact consumption, as most consumption is autonomous.
D) will decrease consumption, as the government will have to spend less.

Question

Quizplus · Accepted Answer

According to the Keynesian approach, a decrease in taxes will lead to an increase in disposable income and therefore an increase in consumption. However, the increase in consumption will be less than the change in taxes because some of the additional disposable income will be saved rather than spent. Thus, choice B is the best answer.

According to the Keynesian Approach, a Decrease in Taxes