Exhibit 11-5
-In an economy characterized by the aggregate expenditure line in Exhibit 11-5,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 11-5 
-In an economy characterized by the aggregate expenditure line in Exhibit 11-5,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

Autonomous net taxes are a component of autonomous expenditure, which is the point where the aggregate expenditure line intersects the Y-axis. An increase in autonomous net taxes would shift the aggregate expenditure line downward, decreasing equilibrium real GDP. In this case, the decrease would be equal to the size of the initial autonomous net tax increase, which is $100. Therefore, the correct answer is B.

Exhibit 11-5 -In an Economy Characterized by the Aggregate Expenditure Line in Expenditure