Assume autonomous net taxes rise by $400; the marginal propensity to consume = 3/4.Net exports,planned investment,taxes,and government purchases are autonomous and remain fixed.As a result,consumption will initially
A)fall by $400
B)rise by $400
C)fall by $300
D)rise by $300
E)remain unchanged

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is 3/4, meaning that for every dollar of income, consumption increases by 75 cents. If autonomous net taxes rise by $400, disposable income decreases by $400, leading to an initial decrease in consumption of 3/4 of $400, which is $300.

Assume Autonomous Net Taxes Rise by $400; the Marginal Propensity