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: Check each statement.
- (A) True → Proportional tax stabilises income automatically
- (B) True → Increase in autonomous spending increases equilibrium income
- (C) False → Higher MPC → higher multiplier, not lower
- (D) True → Lower transfer payments reduce aggregate output

Step 2: Select correct combination.
(A), (B) and (D) are correct