Let Y = Real GDP and Y_d = Disposable Income

question 21

Multiple Choice

Let Y = real GDP and Y_d = disposable income. Suppose initially, Y = Y_d and the marginal propensity to consume (MPC) is 0.8. All components of aggregate expenditures except consumption are autonomous. Now suppose the government imposes an income tax rate of 30% on real GDP. As a result, one additional dollar will increase consumption by

• A) $0.24.
• B) $0.30.
• C) $0.56.
• D) $0.50.

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