When the government levies a $100 million tax on people's income and puts the $100 million back into the economy in the form of a spending program,such as new interstate highway construction,the:

Question

Quizplus · Accepted Answer

When the government levies a $100 million tax and spends the same amount, the spending will act as a fiscal stimulus and increase the level of real GDP by the same amount. Therefore, the answer is C - the level of real GDP expands by $100 million. The tax multiplier can magnify the effect of taxes on the level of real GDP, but in this case, the spending will offset the negative effect of taxation, resulting in an expansion of real GDP. The MPC is not needed in this scenario since the spending program is assumed to have a direct impact on real GDP.

When the Government Levies a $100 Million Tax on People's