If income tax rates are increased in an attempt to balance the federal budget, we should expect to see
A)an increase in consumption and a decrease in GDP.
B)an increase in consumption and an increase in GDP.
C)a decrease in consumption and a decrease in GDP.
D)a decrease in consumption and an increase in GDP.

Question

Quizplus · Accepted Answer

If income tax rates are increased, people will have less disposable income to spend on consumption, causing a decrease in consumption. The decrease in consumption will lead to a decrease in GDP as businesses will produce less due to decreased demand. Therefore, option C is the best choice.

If Income Tax Rates Are Increased in an Attempt to Balance