The introduction of a tax by the government will: a. affect government spending since the...
The introduction of a tax by the government will:
| a. |
affect government spending since the government levies the tax. |
|
| b. |
affect consumption through its effect on investment. |
|
| c. |
have no effect on real GDP since real GDP comprises consumption expenditure, investment expenditure, and government expenditure. |
|
| d. |
increase real GDP since it enables the government to increase spending. |
|
| e. |
affect consumption through a change in disposable income. |
Homework Answers
Answer
Option a
affect consumption through a change in disposable income.
Disposable income =gross income -taxes
the taxes decreases the disposable income
Consumption =autonomus consumption *MPC*DI
DI=disposable incoem
MPC=marginal propesity to consume
so the consumption decreases as the DI decreases.
ANd consumption is a part of GDP so the real GDP decreases
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