If the time path of government purchases does not change and the government cuts lump sum taxes, then:
A)real GDP falls.
B)real consumption falls.
C)real gross investment does not change.
D)all of the above.

Question

Quizplus · Accepted Answer

When the government cuts lump-sum taxes, it increases the disposable income of households, which typically leads to an increase in consumption. This does not directly affect the gross investment, as the question specifies that the time path of government purchases does not change. Therefore, real gross investment does not change.

If the Time Path of Government Purchases Does Not Change