If the time path of government purchases does not change and the government cuts lump sum taxes, then:
A)real GDP does not change.
B)real consumption does not change.
C)real gross investment does not change.
D)all of the above.

Question

Quizplus · Accepted Answer

When the government cuts lump sum taxes, disposable income increases, leading to an increase in real consumption. This increase in demand can lead to an increase in real GDP. Additionally, the increase in consumption can crowd out some gross investment due to higher interest rates or other mechanisms, indicating that real gross investment can change as well. Therefore, all of the statements are incorrect, making D the correct choice as it correctly states that none of the provided outcomes (A, B, C) would remain unchanged.

If the Time Path of Government Purchases Does Not Change