The automatic revenue and spending changes built into the federal budget have the effect of
A) increasing the marginal propensity to expend, thus reducing the value of the multiplier.
B) reducing the marginal propensity to expend, this reducing the value of the multiplier.
C) reducing the marginal propensity to expend, this increasing the value of the multiplier.
D) increasing the marginal propensity to expend, this increasing the value of the multiplier.

Question

Quizplus · Accepted Answer

Automatic revenue and spending changes in the federal budget, such as taxes and welfare payments, adjust with the economy's performance. When the economy grows, taxes increase and welfare payments decrease, reducing disposable income and thus the marginal propensity to expend. This action reduces the multiplier effect because there is less additional spending generated from an initial injection of spending.

The Automatic Revenue and Spending Changes Built into the Federal