Washington Weaver
09/03/2024 · Middle School

5. Suppose the govemment increases the tax on tobacco products, and suppose the demand for these products is inelastic. How should this be analysed on the multiplier model? Which of the following statements is true? A The planned expenditure line will shift upwards, because people will pay more in the shops on tobacco products. B The planned expenditure line will shift downwards, because people will buy fewer cigarettes, so their spending on tobacco after allowing for the tax will be lower. C The withdrawals line will end up shifting downwards, because the rise in the tax will cause people to save less. D The injections line will shift downwards, because this includes all govemment spending net of taxes.

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The planned expenditure line will shift downwards because people will buy fewer cigarettes after the tax increase.

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