Chapter 21, Problem 6MCQ

To determine

The maximum effect on real GDP when there is $100 million increase in taxes

Answer to Problem 6MCQ

From the available options, the correct option is a decrease of more than $100 million.

Explanation of Solution

As increase in income tax would decrease the real GDP as it lowers the spending and consumption in the economy which means if there is more than $100 million decrease in real GDP when taxes are increased by $100 million.

Therefore, the correct option is b (a decrease of more than $100 million) and all other options are incorrect because there will be no increase in GDP and decrease in GDP less than the increase in taxes.

Economics Concept Introduction

Introduction: The gross domestic product refers to the value of goods and services of the economy in a particular time period.