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Suppose the government increases taxes by ​$110 billion and the marginal propensity to consume is 0.80. By how will equilibrium GDP​ change? The change in equilibrium GDP​ is: ​$ nothing billion. ​(Round your solution to one decimal place and include the minus sign if​ necessary.)

Respuesta :

Manetho

Answer:

change in GDP= $440 billion

Explanation:

Given :

Increase in the taxes by government = $110 billion

marginal propensity to the consumer (MPC)= 0.80

By formula we know that

Tax multiplier = -MPC/(1-MPC)

now putting the value we get

Tax multiplier = -[tex]\frac{0.8}{1-0.8}[/tex]

= -4

The change in GDP is given by( Tax multiplier* Increase in the taxes )

Therefore,change in GDP= [tex]-4\times110= -440[/tex] billion

Minus sign indicate decrease in GDP

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