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Answer the Question on the Basis of the Following Before-Tax

Question 22

Multiple Choice

Answer the question on the basis of the following before-tax consumption schedule for a closed economy:  Gross Domestic  Product (GDP)  Consumption (C)  $0$40100120200200300280400360\begin{array}{l}\text { Gross Domestic }\\\underline{\text { Product (GDP) } } & \underline{\text { Consumption (C) }} \\\$0 & \$ 40 \\100 & 120 \\200 & 200 \\300 & 280 \\400 & 360\end{array} Refer to the data.If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy,we can conclude that the tax:


A) enhances the economy's built-in stability.
B) reduces the economy's built-in stability.
C) neither increases nor decreases built-in stability.
D) increases the MPC and therefore increases the size of the multiplier.

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