ECON MACRO
5th Edition
ISBN: 9781337000529
Author: William A. McEachern
Publisher: Cengage Learning
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Textbook Question
Chapter 11, Problem 1.5P
Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier?
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Suppose the MPC is 0.8. What is the tax multiplier in this economy? If the government were to lower taxes by $250 in this economy how much would Total Spending change as a result? Show your work.
Calculate the government spending multiplier and the tax multiplier if the MPC is 0.6. Show your work
Why is the tax multiplier smaller than the government spending multiplier?
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- Why would a higher tax rate lower the government purchases multiplier? What does the tax rate have to do with the government purchases multiplier?arrow_forwardExplain carefully why the tax multiplier is negative and why it is smaller in absolute value than the government expenditure multiplier.arrow_forwardSuppose that real GDP for an economy is currently 16,000 billion, the government purchases multiplier is 2.2 and the tax multiplier is -1.2. If the government deploys additional spending of 600 billion and cuts taxes by 120 billion, where will GDP end up (in billion)?arrow_forward
- Calculate the government spending and tax multipliers for each income bracket, considered separately. MPC Tax Multiplier Income/spending Multiplier Household income 0-$30,000 $31,000-50,000 $51,000-80,000 $80,000 and above 0.9 0.8 0.75 0.6arrow_forwardHow does an increase in tax influence the size of the multiplierarrow_forwardWhat's the tax multiplier if MPC = 0.75? Select one: a. -4 b. -3 С. 3 d. 0.33arrow_forward
- Suppose the MPC in an economy is 0.95. What should the government do with taxes if they want to increase Total Spending by $665? Show your workarrow_forwardIncreasing government expenditure is likely to have a larger multiplier effect than an equivalent reduction in taxation. Explain why this is so.arrow_forward
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