Asked by Eskarlin Sanchez on May 21, 2024
Verified
The effect of a change in net taxes on the quantity of real GDP demanded equals the resulting shift in the consumption function times _____.
A) the marginal propensity to consume
B) the marginal propensity to save
C) the autonomous net tax multiplier
D) the simple spending multiplier
E) the marginal tax rate
Marginal Propensity
The additional amount that people consume or save when they receive an extra dollar of income.
Simple Spending Multiplier
A ratio that estimates the impact on aggregate output (or income) of a change in autonomous spending.
Net Taxes
The total taxes paid by an individual or business minus any government subsidies or refunds received.
- Acquire knowledge on the principle of aggregate expenditure and its linkage with fiscal policy.
Verified Answer
RH
Rachael Hughes RobillardMay 23, 2024
Final Answer :
D
Explanation :
The effect of a change in net taxes on the quantity of real GDP demanded is determined by the simple spending multiplier, which is the change in equilibrium GDP divided by the change in net taxes. The simple spending multiplier is equal to 1/(1-MPC) where MPC is the marginal propensity to consume. Therefore, the effect of a change in net taxes equals the resulting shift in the consumption function times the simple spending multiplier.
Learning Objectives
- Acquire knowledge on the principle of aggregate expenditure and its linkage with fiscal policy.