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, what will be the change in equilibrium real GDP demanded?
A) It will fall by $300.
B) It will rise by $300.
C) It will fall by $600.
D) It will rise by $600.

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, what will be the change in equilibrium real GDP demanded?  
A) It will fall by $300. 
B) It will rise by $300. 
C) It will fall by $600. 
D) It will rise by $600.

Quizplus · Accepted Answer

The change in equilibrium real GDP demanded can be calculated using the multiplier effect. The multiplier is 1/(1-MPC), which in this case is 1/(1-2/3) = 3. A $300 fall in autonomous net taxes increases disposable income, leading to an increase in consumption and thus an increase in equilibrium real GDP demanded by 3 times the initial change, which is $300 * 3 = $900. However, none of the provided options matches $900, indicating a potential misunderstanding in the question's setup or a mistake in the interpretation. Given the options, the closest logical answer based on the multiplier effect would be an increase, but the exact figures provided do not align with the standard multiplier calculation.

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