Suppose autonomous taxes and transfer payments each increase by $50 billion.If the MPC equals 0.75, by what amount does equilibrium real GDP demanded change?
A) by -$200 billion
B) by -$50 billion
C) by $0
D) by $50 billion

Question

Suppose autonomous taxes and transfer payments each increase by $50 billion.If the MPC equals 0.75, by what amount does equilibrium real GDP demanded change?  
A) by -$200 billion 
B) by -$50 billion 
C) by $0 
D) by $50 billion

Quizplus · Accepted Answer

An increase in autonomous taxes and transfer payments by the same amount leaves disposable income unchanged, thus having no effect on equilibrium real GDP demanded when considering the multiplier effect and assuming other factors remain constant.

Suppose Autonomous Taxes and Transfer Payments Each Increase by $50