Govemment Real domestic Spendingautpot (GDP) Consumption Taxs InvetmentAggregate

Question

Govemment Real domestic Spendingautpot (GDP) Consumption Taxs InvetmentAggregate Billion) billions) (biliom)Billions) billions) Expanditures billiom) $16 16 16 16 16 16 16 16 16 S260 276 $4 $240 $240 256 $6 308 324 340 366 320 340 320 336 352 368 388 in the economy described above, if the government increased taxes on households, which of the following will occti? Select one: O a. consumption would fall at each level of GDP O b. consumption would rise at each level of GDP O c. Investment would increase O d. Government spending would fall

Explanation / Answer

a) consumption would fall at each level of GDP.

Increase in taxes reduces disposable income of consumer, so consumption expenditure of household decreases at each level of GDP.

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