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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Given the Keynesian consumption function, how would a cut in income tax rates affect consumption? Explain your answer.

To determine

The cut in income tax rate and the consumption.

Explanation

The consumption function is directly related to the income tax rates. When there is a cut in the income tax rate, the people who earn income have to pay a lower share to the government as taxes. This means that the tax payment decreases. The disposable income of the consumer determines the consumption pattern of the consumer.

Thus, the disposable income and the consumption are positively related...

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