A decrease in net taxes:
a. raises aggregate expenditure by raising disposable income, thereby increasing consumption.
b. raises aggregate expenditure by raising disposable income, thereby decreasing consumption.
c. lowers aggregate expenditure by lowering disposable income, thereby decreasing consumption.
d. lowers aggregate expenditure by lowering disposable income, consumption remaining constant.
e. has no effect on aggregate expenditure.
a
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In the traditional Keynesian model, an income tax cut raises real GDP because
A) consumption spending depends positively on after-tax income. B) of the crowding-out effects of taxes. C) consumption spending depends negatively on after-tax income. D) consumption spending is not related to after-tax income.
If Pepsi decided to raise its price, you would expect the price of Coca Cola
A) to fall. B) to raise. C) Their prices should have no relationship because Pepsi and Coca Cola are not related. D) None of the above answers are correct.