In the macroeconomy if the price of inpu rises and personal

In the macroeconomy, if the price of inpu rises and personal income taxes rise: 0 a. Price index falls, and real GDP rises. O b. Price index falls, and real GDP falls. O c. Price index falls, and the change in real GDP is uncertain. O d. The change in price index is uncertain, and real GDP rises. O e. The change in price index is uncertain, and real GDP falls.

Solution

The price index is an average of the general price in the economy used to measure a rise or fall in the price level. For example, When the income tax rises the consumer will demand less and it will lead to a fall in the price index but when the input price is rising it will increase the price index. Here, we have two different forces acting together.

The answer is \"The change in price index is uncertain, and real GDP falls\". (due to higher prices and raised tax the disposable income will decrease and people will demand less.)