If autonomous net taxes increase by $10 trillion and the marginal propensity to consume is 0.8,consumption initially will
A)increase by $50 trillion
B)decrease by $10 trillion
C)decrease by $8 trillion
D)increase by $10 trillion
E)decrease by $50 trillion

Question

Quizplus · Accepted Answer

When autonomous net taxes increase, disposable income decreases, leading to a decrease in consumption. The decrease in consumption is calculated as the change in taxes multiplied by the marginal propensity to consume (MPC). Here, $10 trillion * 0.8 = $8 trillion decrease in consumption.

If Autonomous Net Taxes Increase by $10 Trillion and the Marginal