The Figure Above Shows Two Aggregate Expenditure Lines

question 186

Multiple Choice

The figure above shows two aggregate expenditure lines.
-In the figure above, what would happen to the size of the multiplier if marginal income tax rates were increased?

• A) the multiplier would rise in value
• B) the multiplier would fall in value but would not become negative
• C) the multiplier would not change in value
• D) the multiplier would fall in value and might become negative
• E) More information is needed to determine the effect on the size of the multiplier.

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Definitions:

Ronald Reagan

The 40th President of the United States, serving from 1981 to 1989, known for his conservative policies, economic initiatives known as Reaganomics, and a strong stance against the Soviet Union.

Taxes

Mandatory financial charges imposed by a government on individuals or entities to fund public expenditures.

Service Sector

The sector of the economy that provides intangible goods and services to consumers, including retail, healthcare, and financial services.

Real Wages

Wages adjusted for inflation, reflecting the actual buying power of income in the economy.