Answer the Question on the Basis of the Following Data

question 141

Multiple Choice

Answer the question on the basis of the following data: $\begin{array}{cc}\underline{\text { After-Tax Income} } &\underline{ \text { Consumption }} \\\$ 1,000 & \$ 900 \\2,000 & 1,800 \\3,000 & 2,700 \\4,000 & 3,600 \\5,000 & 4,500\end{array}$ The data suggest that:

• A) a policy of tax reduction will increase consumption.
• B) a policy of tax increases will increase consumption.
• C) tax changes will have no impact on consumption.
• D) after-tax income should be lowered to increase consumption.

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Definitions:

Real GDP

The measure of a country's economic output adjusted for price changes (inflation or deflation), reflecting the actual value of goods and services produced over a specific period.

Equilibrium

A state in economics where supply equals demand, resulting in a stable market condition where there is no tendency for change.

Equilibrium Level

The state in an economy or a market where supply equals demand, and there is no tendency for change until an external force is applied.

Real GDP

Gross Domestic Product adjusted for inflation, measuring the value of goods and services produced in a country.