Assume autonomous net taxes fall by $300; the MPC = 2/3.Net exports,planned investment,taxes,and government purchases are autonomous and remain fixed.As a result,equilibrium real GDP demanded will
A)rise by $300
B)rise by $900
C)fall by $300
D)fall by $600
E)rise by $600

Question

Quizplus · Accepted Answer

The tax multiplier is given by -MPC/(1-MPC). With MPC = 2/3, the tax multiplier is -2/3 / (1 - 2/3) = -2. A $300 decrease in taxes will increase GDP by $300 * 2 = $600.

Assume Autonomous Net Taxes Fall by $300; the MPC =