A tax cut will have a greater effect on equilibrium GDP if the
A)marginal propensity to consume is smaller.
B)marginal propensity to save is smaller.
C)marginal propensity to save is larger.
D)average propensity to consume is larger.

Question

Quizplus · Accepted Answer

A tax cut will have a greater effect on equilibrium GDP if the marginal propensity to save is smaller because more of the tax cut will be spent rather than saved, leading to a larger increase in consumption and thus a larger multiplier effect on GDP.

A Tax Cut Will Have a Greater Effect on Equilibrium