The Accompanying Table Is the Before-Tax Consumption Schedule for a

question 257

Multiple Choice

$$\begin{array} { | c | c | } \hline \text { Gross Domestic Product (GDP) } & \text { Consumption (C) } \\\hline \$ 0 & \$ 40 \\\hline 100 & 120 \\\hline 200 & 200 \\\hline 300 & 280 \\\hline 400 & 360 \\\hline\end{array}$$ The accompanying table is the before-tax consumption schedule for a closed economy. If a lump-sum tax (the same tax amount at each level of GDP) of $40 is imposed in this economy, we can conclude that
The tax

• A) enhances the economy's built-in stability.
• B) reduces the economy's built-in stability.
• C) neither increases nor decreases built-in stability.
• D) increases the MPC and therefore increases the size of the multiplier.