Question

An increase in government expenditure is likely to have a greater impact on national output than a reduction in taxes. Which of the following could be reasons for this?

• A. Consumers respond to a fall in the tax rates by saving a part of the increase in their disposable income
• B. Employees increase work hours in response to lower taxes
• C. A reduction in net taxes is likely to lead to higher interest rates
• D. The increase in government spending leads to a lower fiscal deficit

Answer 1

The correct option is A

Consumers respond to a fall in the tax rates by saving a part of the increase in their disposable income

Consumers respond to a fall in the tax rates by saving a part of the increase in their disposable income.