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

2245 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

What is deadweight welfare loss and how is it shown on a market failure diagram?


Evaluate the usefulness a knowledge of perfect competition theory in analysing the behaviour of firms. [15]


Should the United Kingdom Government rely on market forces to redistribute income and wealth, to make it fairer or intervene to do so?


How does a reduction in the interest rate affect aggregate demand in a closed economy?


We're here to help

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

MyTutor is part of the IXL family of brands:

© 2025 by IXL Learning