The introduction of a tax by the government will:
A)have no effect on real GDP since real GDP comprises consumption expenditure,investment expenditure,and government expenditure.
B)affect consumption through a change in disposable income.
C)affect consumption through its effect on investment.
D)affect government spending since the government levies the tax.
E)increase real GDP since it enables the government to increase spending.

Question

Quizplus · Accepted Answer

The introduction of a tax will affect consumption through a change in disposable income. When individuals and firms pay taxes, they have less disposable income to spend on consumption, which can decrease overall consumption and ultimately impact GDP.

The Introduction of a Tax by the Government Will