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When the Consumption Function Is Expressed as C = Ca

Question 5

Multiple Choice

When the consumption function is expressed as C = Ca + b (1- t) y, income taxes act as an automatic stabilizer because:

A) when the economy experiences a large increase in GDP, the government's tax collection increases without the approval from Congress, increasing disposable income and consumption.
B) when the economy experiences a large increase in GDP, the government's tax collection decreases without government action, decreasing disposable income and consumption.
C) when the economy experiences a large increase in GDP, the government's tax collection increases without government action, decreasing disposable income and consumption.
D) when the economy experiences a large increase in GDP, the government's tax collection increases without government action, increasing disposable income and consumption.

Correct Answer: