In the Keynesian-cross model, if taxes are reduced by 100, then planned expenditures ______ for any given level of income.
A) increase by 100
B) increase by more than 100
C) decrease by 100
D) increase, but by less than 100

Question

Quizplus · Accepted Answer

In the Keynesian-cross model, a reduction in taxes increases disposable income, leading to an increase in consumption and thus planned expenditures. However, the increase in planned expenditures is less than the tax cut due to the marginal propensity to consume being less than 1.

In the Keynesian-Cross Model, If Taxes Are Reduced by 100