29l8pic 15-Final Exam Materials / 141 final exam fall 2017-Tuesday Night 6-8:30

Question

29l8pic 15-Final Exam Materials / 141 final exam fall 2017-Tuesday Night 6-8:30 6 tReal domestic Spending aotput (GDP) Consumption Tax LavetmentAggrgate Billions) billiona) (biios)Billionn) illions) Expenditore S240 S5 300 320 340 360 380 $16 16 16 16 16 16 324 336 16 In the economy described above, it the government increased taxes on households, which of the following will occur? Select one: a. consumption would fall at each level of GDP b. consumption would rise at each level of GDP c. Investment would increase d. Government spending would fall us page 5

Explanation / Answer

A. Consumption would fall.

C = a + b(Y-T)

Increase in taxes, deceases disposable income and hence consumption expenditure declines..

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