The effect of imposing a lump-sum tax is to
A)reduce the absolute levels of consumption and saving at each level of GDP and to reduce the size of the multiplier.
B)reduce the absolute levels of consumption and saving at each level of GDP but to not change the size of the multiplier.
C)reduce the absolute levels of consumption and saving at each level of GDP and to increase the size of the multiplier.
D)increase the absolute levels of consumption and saving at each level of GDP and to increase the size of the multiplier.

Question

Quizplus · Accepted Answer

A lump-sum tax reduces disposable income, leading to lower consumption and saving at each GDP level, but it does not affect the marginal propensity to consume or save, so the multiplier remains unchanged.

The Effect of Imposing a Lump-Sum Tax Is to