In an effort to balance the federal budget, an increase in Social Security taxes is passed.What is the most likely effect of this on equilibrium GDP?
A)GDP will increase.
B)GDP will decrease.
C)GDP will not change but prices will rise.
D)GDP will not change but employment will increase.

Question

Quizplus · Accepted Answer

An increase in Social Security taxes means that consumers and businesses have less disposable income to spend, which will likely lead to a decrease in consumer spending and investment. This decrease in aggregate demand will cause a decrease in equilibrium GDP.

In an Effort to Balance the Federal Budget, an Increase