If a lump-sum tax of $40 billion is imposed and the MPC is .6,the saving schedule will shift:
A) downward by $24 billion.
B) upward by $24 billion.
C) downward by $16 billion.
D) upward by $16 billion.

Question

Quizplus · Accepted Answer

A lump-sum tax reduces disposable income, leading to a decrease in both consumption and saving. With an MPC of 0.6, the marginal propensity to save (MPS) is 0.4. Therefore, the saving schedule will shift downward by 0.4 times the tax amount, which is $16 billion.

If a Lump-Sum Tax of $40 Billion Is Imposed and the MPC