In the short run, an increase in autonomous taxes will
I. shift the aggregate demand curve leftward.
II. decrease real GDP.
III. increase the government purchases multiplier.
IV. increase the autonomous tax multiplier.
A) I and III
B) II and IV
C) I only
D) I and II

Question

Quizplus · Accepted Answer

An increase in autonomous taxes means consumers have less disposable income, which will shift the aggregate demand curve leftward and decrease real GDP in the short run. The government purchases multiplier and autonomous tax multiplier are not directly affected by an increase in autonomous taxes.

In the Short Run, an Increase in Autonomous Taxes Will