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Questions about the tax multiplier:
1. Suppose the marginal propensity to consume (MPC) for a nation is 0.7. What is the tax multiplier for this nation?
2. What is the tax multiplier for this nation if a $150 increase in taxes reduces real GDP by $450?
3. How much will real GDP change if the tax multiplier is-9 and taxes are reduced by $200?

Respuesta :

Answer:

1. The tax multiplier for this nation is -2.33

2. The tax multiplier for this nation if a $150 increase in taxes reduces real GDP by $450 would be -3

3. Real GDP change will be of -$1,800 if the tax multiplier is-9 and taxes are reduced by $200

Explanation:

1. In order to calculate the tax multiplier for this nation according to the given data we would have to calculate the following formula:

tax multiplier for this nation=-MPC/1-MPC

tax multiplier for this nation=-0.7/1-0.7

tax multiplier for this nation=-2.33

The tax multiplier for this nation is -2.33

2. To calculate the tax multiplier for this nation if a $150 increase in taxes reduces real GDP by $450 we would have to make the following calculation:

tax multiplier for this nation=real GDP/increase in taxes

tax multiplier for this nation=-$450/$150

tax multiplier for this nation=-3

The tax multiplier for this nation if a $150 increase in taxes reduces real GDP by $450 would be -3

3. To calculate the amount of change will real GDP be if the tax multiplier is-9 and taxes are reduced by $200 we would have to make the following calculation:

tax multiplier=real GDP/increase in taxes

-9=real GDP/$200

real GDP=-9*$200

real GDP=-$1800

Real GDP change will be of -$1,800 if the tax multiplier is-9 and taxes are reduced by $200

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