An Increase in Taxes of a Given Amount Will Have

question 97

Multiple Choice

An increase in taxes of a given amount will have a smaller impact on real GDP than a decrease in government purchases of equal amount because

• A)tax increases reduce the incentive to spend and invest.
• B)some of the additional tax will come from disposable income that would have been saved.
• C)the decline in disposable income is less than the tax increases.
• D)government purchases are subject to a larger multiplier than consumption purchases.
• E)declines in government purchases occur only in textbooks,never in reality.

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