The tax multiplier is usually smaller in absolute value than the government spending multiplier because a tax cut:
Correct answer: A. Raises disposable income, but part of it is saved
- A. Raises disposable income, but part of it is saved
- B. Always reduces private investment by the same amount
- C. Directly increases exports more than public spending does
- D. Has no effect on household consumption
Explanation
A tax cut increases disposable income, but households generally save part of the increase and spend only the remainder. Government spending enters aggregate demand directly, so its simple multiplier is usually larger.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? support@testustad.com
About Public Finance
Government revenue and expenditure are analysed through taxation, public borrowing, budgets, subsidies, transfers and public debt. The topic explains how fiscal policy affects resource allocation, income distribution, economic stability and growth, while distinguishing direct from indirect taxes, progressive from regressive taxation, and public goods from goods supplied by private markets.
Practise Public Finance
406 free Public Finance MCQs from Economics, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Exams that ask Economics questions like this
Economics is on 2 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Public Finance questions
Which statement best describes tax avoidance?
A Pigouvian tax is designed primarily to:
Fiscal drag occurs when inflation pushes taxpayers into higher tax brackets, causing:
An equalization grant to a provincial government is mainly intended to:
Which item is a capital receipt for a government?
Debt servicing expenditure refers mainly to government payments for: