Question

Which of the following statements are correct? (A). A proportional income tax is an automatic stabiliser.
(B). An increase in autonomous spending raises the equilibrium level of income.
(C). As the marginal propensity to consume gets larger, the lower the multiplier will be.
(D). A reduction in transfer payments lowers the output.

• A. (A), (B) and (D) only
• B. (A), (B) and (C) only
• C. (B), (C) and (D) only
• D. (A), (B), (C) and (D)

Hint:

Multiplier rises with higher marginal propensity to consume; automatic stabilisers include proportional taxes.

Answer 1

The Correct Option is A

Step 1: Evaluate each statement's validity.
- (A) True → A proportional tax acts as an automatic stabilizer for income.
- (B) True → An increase in autonomous spending leads to an increase in equilibrium income.
- (C) False → A higher MPC results in a higher multiplier, not a lower one.
- (D) True → A decrease in transfer payments decreases aggregate output.

Step 2: Identify the correct combination of statements.
Statements (A), (B), and (D) are correct.