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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

A $40 reduction in taxes increases Real GDP by $100, and a $50 increase in government spending increases Real GDP by $120. What is the tax multiplier? What is the government spending multiplier?

To determine

Calculation of tax multiplier and spending multiplier.

Explanation

The general formula for calculating tax multiplier is given below:

Tax multiplier=Change in real GDPChange intax (1)

Substitute the respective values in Equation (1) to calculate the tax multiplier.

Tax multiplier=10040=2.5

Tax multiplier is 2.5

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