Exhibit 11-3

-Refer to the graph in the exhibit.If the government wants to increase equilibrium by $100 billion through a change in autonomous net taxes, autonomous net taxes might decrease.If the decrease occurs, what is the likely amount?
A) $100 billion
B) $100 billion × (1 - MP
C)/MPC
C) $100 billion × MPC/(1 - MP
D) $100 billion × MPC/(MPC - 1)

Question

Exhibit 11-3
 
-Refer to the graph in the exhibit.If the government wants to increase equilibrium by $100 billion through a change in autonomous net taxes, autonomous net taxes might decrease.If the decrease occurs, what is the likely amount?  
A) $100 billion 
B) $100 billion × (1 - MP
C)/MPC 
C) $100 billion × MPC/(1 - MP
D) $100 billion × MPC/(MPC - 1)

Quizplus · Accepted Answer

A decrease in autonomous net taxes would shift the aggregate demand curve to the right, increasing equilibrium GDP. The equation for the change in equilibrium GDP due to a change in autonomous net taxes is ΔY = MPC × ΔT. Solving for ΔT given a desired increase in equilibrium GDP of $100 billion, we get ΔT = $100 billion × MPC/(1 - MPC).

Exhibit 11-3 -Refer to the Graph in the Exhibit.If the Government Wants