A given increase in taxes shifts the IS curve more to the left the:
A) larger the marginal propensity to consume.
B) smaller the marginal propensity to consume.
C) larger the government spending.
D) smaller the government spending.

Question

Quizplus · Accepted Answer

A larger marginal propensity to consume means that consumers are more likely to spend additional income, so a tax increase (which reduces disposable income) would lead to a larger decrease in consumption and a more significant shift of the IS curve to the left.

A Given Increase in Taxes Shifts the IS Curve More