Assume autonomous net taxes fall by $300, and the MPC equals 2/3.Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed.How will disposable income initially change?
A) It will rise by $900.
B) It will rise by $300.
C) It will rise by $200.
D) It will fall by $300.

Question

Assume autonomous net taxes fall by $300, and the MPC equals 2/3.Net exports, planned investment, taxes, and government purchases are autonomous and remain fixed.How will disposable income initially change?  
A) It will rise by $900. 
B) It will rise by $300. 
C) It will rise by $200. 
D) It will fall by $300.

Quizplus · Accepted Answer

Autonomous net taxes falling by $300 increases disposable income by the same amount, as disposable income is equal to national income minus net taxes. Since all other variables are assumed to be fixed and there is no mention of any other changes, disposable income will increase by $300.

Assume Autonomous Net Taxes Fall by $300, and the MPC