PRC-3 · Chapter 15 · Question 43 of 44
If the government decides to aggressively increase direct income taxes on citizens, what is the mathematical effect on the value of the national output multiplier?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It will definitively decrease
Explanation
Taxes act as a withdrawal from the circular flow. Higher taxes reduce citizens' disposable income, meaning they pass on less money in each spending round, weakening the multiplier.
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