An increase in a lump-sum tax has the same effect on equilibrium GDP as an equal decrease in government purchases.

Name: An increase in a lump-sum tax has the same effect on equilibrium GDP as an equal decrease in government purchases.
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Question

Quizplus · Accepted Answer

An increase in a lump-sum tax reduces disposable income, leading to a decrease in consumption and thus a smaller decrease in GDP compared to an equal decrease in government purchases, which directly reduces GDP by the full amount of the decrease.

An Increase in a Lump-Sum Tax Has the Same Effect