Match List-I with List-II

List-I	List-II
(A) An increase in proportional taxes	(I) Decreases consumption by MPC times the change in taxes.
(B) An increase in lump-sum taxes	(II) Automatic Stabilizer.
(C) Proportional income tax	(III) Aggregate demand curve shift inwards.
(D) Lump sum taxes	(IV) Do not depend upon income.

Choose the correct answer from the options given below:

1. (A) - (I), (B) - (II), (C) - (III), (D) - (IV)
2. (A) - (I), (B) - (III), (C) - (II), (D) - (IV)
3. (A) - (III), (B) - (I), (C) - (II), (D) - (IV)
4. (A) - (III), (B) - (I), (C) - (IV), (D) - (II)

Option 3: (A) - (III), (B) - (I), (C) - (II), (D) - (IV) -> Let's match each item correctly:

(A) An increase in proportional taxes → (III) Aggregate demand curve shifts inwards: Proportional taxes are based on income percentage. When they increase, disposable income falls across all income levels, reducing consumption and investment, causing AD to shift leftward.

(B) An increase in lump-sum taxes → (I) Decreases consumption by MPC times the change in taxes: Lump-sum taxes are fixed amounts. When they increase by ΔT, disposable income falls by ΔT, and consumption decreases by MPC × ΔT (where MPC is marginal propensity to consume).

(C) Proportional income tax → (II) Automatic Stabilizer: These taxes automatically adjust with income fluctuations. During economic expansion, tax revenue rises automatically, dampening growth. During recession, tax revenue falls automatically, cushioning the decline. No policy action needed.

(D) Lump sum taxes → (IV) Do not depend upon income: These are fixed amounts that remain constant regardless of income level changes, unlike proportional taxes which vary with income. -> correct