Home / Questions / Suppose that the MPC is 0.6 and the tax rate is 04 What is the value of the multiplier 2.5...
Suppose that the MPC is 0.6 and the tax rate is 0.4. What is the value of the multiplier? 2.5 1.56 0 1 The reason why proportional taxation is called "an automatic stabilizer" is because it increases the multiplier and hence makes the economy over-expand during a boom it stabilizes the MPC of the agents, which, otherwise, will take values above 1 it reduces the impact of both positive and negative shocks on economic activity it automatically makes everybody's income the same.
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