Exhibit 12-2
-In an economy characterized by the aggregate expenditure line in Exhibit 12-2, how would a $100 increase in autonomous net taxes impact real GDP?
A)decrease real GDP by $200
B)decrease real GDP by $100
C)no impact on real GDP
D)increase real GDP by $100
E)increase real GDP by $200

Question

Exhibit 12-2 
-In an economy characterized by the aggregate expenditure line in Exhibit 12-2, how would a $100 increase in autonomous net taxes impact real GDP?
A)decrease real GDP by $200 
B)decrease real GDP by $100 
C)no impact on real GDP 
D)increase real GDP by $100 
E)increase real GDP by $200

Quizplus · Accepted Answer

An increase in autonomous net taxes will decrease aggregate expenditure, shifting the line downward. Since the economy was initially at equilibrium with real GDP equal to $1,000, a decrease in aggregate expenditure by $100 will reduce real GDP by $100. Therefore, the correct option is B.

Exhibit 12-2 -In an Economy Characterized by the Aggregate Expenditure Line in Expenditure