The introduction of a $100 autonomous net tax in an economy with an MPC equal to 0.7 will,at each level of real GDP,
A)increase consumption by $100
B)decrease consumption by $100
C)increase consumption by $70
D)decrease consumption by $70
E)decrease consumption by $30

Question

Quizplus · Accepted Answer

The MPC (marginal propensity to consume) is 0.7, which means that for every additional dollar of income, consumers will spend 70 cents. Therefore, a $100 autonomous net tax will decrease consumption by 70 (0.7 x $100) at each level of real GDP.

The Introduction of a $100 Autonomous Net Tax in an Economy