Suppose a $100 Autonomous Net Tax Is Introduced in an Economy

question 72

Multiple Choice

Suppose a $100 autonomous net tax is introduced in an economy with an MPC equal to 0.7.How will this affect consumption at each level of real GDP?  

• A) Consumption will increase by $100. 
• B) Consumption will decrease by $100. 
• C) Consumption will increase by $70. 
• D) Consumption will decrease by $70.

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Definitions:

Abiding by Rules

The act of following established guidelines, regulations, or laws within a given context or environment.

Divergent Thinking

A cognitive approach or technique designed to produce inventive concepts through the examination of numerous potential answers.

Programmed Decision

involves using established procedures or rules to address recurring problems or situations, facilitating consistency and efficiency in decision-making.

Escalation of Commitment

The phenomenon where people continue to invest in a decision or project despite evidence of its failure, often due to pride or fear of loss.