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If the rate of income tax paid by households increases, you expect to see?

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A. a reduction in the MPC

B. an increase in government spending

C. a reduction in the MPW

D. an increase in the MPCd

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  1. B. an increase in government spending

    They should compensate economy by higher spending due to fall in consumption because of MPC*Y(1-t) effect.

    MPC and MPCd for simplest models are unaffected.

    Marginal propensity to tax (MPT) increases thus MPW increases too.

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