In an aggregate expenditures diagram, a lump-sum tax (T) will
A)not affect the C + Ig + Xn line.
B)shift the C + Ig + Xn line upward by an amount equal to T.
C)shift the C + I g + Xn line downward by an amount equal to T.
D)shift the C + Ig + Xn line downward by an amount equal to T × MPC.

Question

Quizplus · Accepted Answer

A lump-sum tax reduces disposable income, which decreases consumption by an amount equal to the tax multiplied by the marginal propensity to consume (MPC), shifting the line downward by T × MPC.

In an Aggregate Expenditures Diagram, a Lump-Sum Tax (T) Will