An increase in autonomous government purchases will have exactly the same effect as an equal increase in
A)autonomous net taxes
B)proportional income taxes
C)autonomous investment
D)autonomous saving
E)transfer payments

Question

Quizplus · Accepted Answer

Autonomous government purchases and autonomous investment are both components of aggregate expenditures in the Keynesian model. An increase in either of these components will shift the aggregate expenditures line upward by the same amount, increasing equilibrium output and price level. The other options listed (autonomous net taxes, proportional income taxes, autonomous saving, transfer payments) affect households' disposable income and saving decisions, but do not directly affect aggregate expenditures.

An Increase in Autonomous Government Purchases Will Have Exactly the Same