Question

If the government repeals an investment tax credit and increases income taxes:

a. real GDP rises, and the price level could rise, fall, or stay the same.
b. real GDP falls, and the price level could rise, fall, or stay the same.
c. real GDP and the price level rise.
d. real GDP and the price level fall.

Answer 1

The correct answer is ( D)

Step-by-step explanation:

Increase in income tax has negative effects on the overall economic growth of a country. The economic growth of a country depends upon the real GDP growth. Increase in income tax leads to a decline in real GDP and price level, because public will try to save money and that leads to decrease in price level and low output productivity.