A decrease in autonomous net taxes
A)increases GDP as much as an equal decrease in government purchases
B)increases GDP less than an equal increase in government purchases
C)decreases GDP more than an equal decrease in government purchases
D)changes GDP in an unpredictable manner
E)has no effect on GDP

Question

Quizplus · Accepted Answer

A decrease in autonomous net taxes will increase disposable income, which in turn will increase consumption spending. However, the increase in consumption spending will be less than an equal increase in government purchases because not all of the additional disposable income will be spent. Some of it will be saved, thereby reducing the multiplier effect on GDP.

A Decrease in Autonomous Net Taxes