Which of the Following Would Reduce GDP by the Greatest

question 38

Multiple Choice

Which of the following would reduce GDP by the greatest amount?

• A)a $20 billion increase in taxes
• B)$20 billion increases in both government spending and taxes
• C)$20 billion decreases in both government spending and taxes
• D)a $20 billion decrease in government spending

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Definitions:

Marginal Propensity

The ratio of the change in an economic variable, such as consumption or saving, to the change in another, typically income.

Disposable Income

The net financial position of households for spending and saving, after accounting for income taxes.

Consumption

Consumption encompasses the acquisition and use of goods and services by households to satisfy their needs and wants.

Induced Consumption

Consumer spending that is influenced by changes in income, differentiating from autonomous consumption which does not vary with income.