The following schedule contains data for a private closed economy. All figures are in billions.
Assume that gross investment is $10 billion.

-Refer to the above data. If a lump-sum tax of $20 is imposed, the consumption schedule will become:
A) Column A
B) Column B
C) Column C
D) Column D

Question

The following schedule contains data for a private closed economy. All figures are in billions.
Assume that gross investment is $10 billion.
 
-Refer to the above data. If a lump-sum tax of $20 is imposed, the consumption schedule will become: 
A) Column A 
B) Column B 
C) Column C 
D) Column D

Quizplus · Accepted Answer

With a lump-sum tax of $20, disposable income will decrease by $20 for all levels of income. Therefore, the consumption schedule will shift down by $20. As seen in column C, consumption at each level of income is $20 less than in column B. Therefore, column C represents the consumption schedule with the lump-sum tax of $20 imposed.

The Following Schedule Contains Data for a Private Closed Economy