Question

The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of theA) decrease in taxes will be saved by households and not spent, and some portion will be spent on imported goods.B) decrease in taxes will be saved by households and not spent, and some portion will be spent on consumer durable goods.C) increase in government purchases will be saved by households and not spent, and some portion will be spent on imported goods.D) increase in government purchases will be saved by households and not spent, and some portion will be spent on consumer durable goods.

Answer 1

Decrease in taxes will be saved by households and not spent, and some portion will be spent on imported goods is the correct statement.

What is tax ?

• A tax is a monetary fee or other levy that a state, or its functional equivalent, such as a local government, imposes on taxpayers to pay for various public expenses. Tax evasion or resistance is against the law, as is failing to pay taxes.

• Taxes can be paid in cash or in the labour equivalent and can be either direct or indirect. The tax system can be divided into direct and indirect taxes.

• Direct taxes are levied on the income or wealth of households or businesses. These taxes are paid directly to the government by the taxpayer. Examples of direct taxes include personal income tax, corporate income tax, and property tax.

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