Exhibit 11-2

-Refer to the graph in the exhibit.Consider an economy characterized by the aggregate expenditure line.How would a $100 decrease in autonomous net taxes affect real GDP?
A) It would decrease real GDP by $100.
B) It would decrease real GDP by $200.
C) It would increase real GDP by $100.
D) It would increase real GDP by $200.

Question

Exhibit 11-2
 
-Refer to the graph in the exhibit.Consider an economy characterized by the aggregate expenditure line.How would a $100 decrease in autonomous net taxes affect real GDP?  
A) It would decrease real GDP by $100. 
B) It would decrease real GDP by $200. 
C) It would increase real GDP by $100. 
D) It would increase real GDP by $200.

Quizplus · Accepted Answer

A decrease in autonomous net taxes would increase disposable income and therefore increase consumption, shifting the aggregate expenditure line upward. This would lead to an increase in real GDP. Assuming a multiplier of 1, the increase in consumption would be equal to the decrease in net taxes, which is $100. Therefore, real GDP would increase by $100.

Exhibit 11-2 -Refer to the Graph in the Exhibit.Consider an Economy Characterized