In an aggregate expenditures diagram the imposition of a lump-sum tax (T)will: A) not affect the C + I_g + X_n line. B) shift the C + I_g + X_n line upward by an amount equal to T. C) shift the C + I_g + X_n line downward by an amount equal to T. D) shift the C + I_g + X_n line downward by an amount equal to T × MPC.

Question

Quizplus · Accepted Answer

A lump-sum tax reduces disposable income, which decreases consumption by an amount equal to the tax times the marginal propensity to consume (MPC), shifting the aggregate expenditures line downward by T × MPC.

In an Aggregate Expenditures Diagram the Imposition of a Lump-Sum