What would be the impact on the multipler effect given an increase in income tax?

The multipler effect is when an additional increase in aggregate demand can cause a greater final impact on national income (GDP) than the inital size of the injection, with the multipler being a coefficient showing the size of the final impact on national income. By increasing the income tax level this will increase the marginal propensity to tax which in turn will increase the marginal propensity to withdraw and hence reduce the size of the multipler. This is due to more money leaking out the circular flow of income (as taxed money can no longer be spent) hence reducing the flow of money within the economy and reducing the size of any multipler effect.

DB
Answered by Daud B. Economics tutor

2096 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What is the impact of deflation?


What is the likely effect of Brexit on the UK economy?


Explain the two main causes of inflation


What is the most common measure of inequality and what is inequality itself?


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences