An Increase in Taxes of a Specific Amount Will Have

question 48

Multiple Choice

An increase in taxes of a specific amount will have a smaller impact on the equilibrium GDP than will a decline in government spending of the same amount because

• A)the MPC is smaller in the private sector than it is in the public sector.
• B)declines in government spending always tend to stimulate private investment.
• C)disposable income will fall by some amount smaller than the tax increase.
• D)some of the tax increase will be paid out of income that would otherwise have been saveD.

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