If the government decreases net autonomous taxes by $100 billion and the MPC = 0.75,then equilibrium real GDP demanded will
A)remain the same
B)increase by $300 billion
C)decrease by $300 billion
D)increase by $400 billion
E)decrease by $400 billion

Question

Quizplus · Accepted Answer

The multiplier effect states that a change in autonomous spending will lead to a larger change in equilibrium real GDP demanded. In this case, the decrease in net autonomous taxes will lead to an increase in equilibrium real GDP demanded by $300 billion.

If the Government Decreases Net Autonomous Taxes by $100 Billion