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.As a result, how will consumption initially change?
A) It will rise by $300.
B) It will fall by $300.
C) It will rise by $200.
D) It will fall by $200.

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.As a result, how will consumption initially change?  
A) It will rise by $300. 
B) It will fall by $300. 
C) It will rise by $200. 
D) It will fall by $200.

Quizplus · Accepted Answer

When autonomous net taxes fall by $300 and the marginal propensity to consume (MPC) is 2/3, the initial change in consumption is calculated as the decrease in taxes ($300) multiplied by the MPC (2/3), which equals $200.

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