Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
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Textbook Question
Chapter 21, Problem 7SQ
Mathematically, the value of the tax multiplier in terms of the marginal propensity to consume (MPC) is given by the formula
- a. MPC − 1.
- b. (MPC − 1)/MPC.
- c. 1/MPC.
- d. 1 − [1/(1 − MPC)].
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If the tax multiplier is -5 and taxes are reduced by $200 billion, output
falls by $1000 billion.
falls by $40 billion.
increases by $40 billion.
increases by $1000 billion.
If the marginal propensity to consume is 0.9, then the tax multiplier will be:
Group of answer choices
impossible to determine.
greater than 10.
less than 10.
zero, because there is no multiplier effect from taxes.
What is the effect of an increase in taxes when the economy is above full employment? What is the magnitude of the tax multiplier?
An increase in taxes when the economy is above full employment _______ aggregate demand and real GDP, and the price level _______.
A.
increases; falls
B.
increases; rises
C.
does not change; does not change
D.
decreases; falls
The magnitude of the tax multiplier is equal to _______.
A.
MPC times the government expenditure multiplier
B.
the government expenditure multiplier divided by MPC
C.
MPC
D.
the government expenditure multiplier
Chapter 21 Solutions
Economics For Today
Ch. 21.3 - Prob. 1YTECh. 21 - Prob. 1SQPCh. 21 - Prob. 2SQPCh. 21 - Prob. 3SQPCh. 21 - Prob. 4SQPCh. 21 - Prob. 5SQPCh. 21 - Prob. 6SQPCh. 21 - Prob. 7SQPCh. 21 - Prob. 8SQPCh. 21 - Prob. 9SQP
Ch. 21 - Prob. 10SQPCh. 21 - Prob. 11SQPCh. 21 - Prob. 1SQCh. 21 - Prob. 2SQCh. 21 - Prob. 3SQCh. 21 - Prob. 4SQCh. 21 - Prob. 5SQCh. 21 - Prob. 6SQCh. 21 - Mathematically, the value of the tax multiplier in...Ch. 21 - Prob. 8SQCh. 21 - Prob. 9SQCh. 21 - Prob. 10SQCh. 21 - Prob. 11SQCh. 21 - Prob. 12SQCh. 21 - Prob. 13SQCh. 21 - Prob. 14SQCh. 21 - Prob. 15SQCh. 21 - Prob. 16SQCh. 21 - Prob. 17SQCh. 21 - Prob. 18SQCh. 21 - Prob. 19SQCh. 21 - Prob. 20SQ
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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.arrow_forwardExplain carefully why the tax multiplier is negative and why it is smaller in absolute value than the government expenditure multiplier.arrow_forwardSuppose the government reduces taxes by 50,000,000, that there is no crowding out, and that marginal propensity to consume is 0.9. What is the total amount of additional economic activity that results from this tax cut?arrow_forward
- Consider an economy in which the marginal propensity to consume is 0.75, prices are constant, G is initially 1,500, taxes are autonomous (not related to income) and are initially 2,000, transfer payments are initially 500, and GDP is initially 8,200. The economy is currently experiencing an inflationary gap. The government wishes to eliminate the gap and intends to reduce GDP to 7,000, and is considering changing government purchases, or taxes, or transfer payments. What new levels of these fiscal policy tools would be needed? In each case, what would the new government surplus or deficit be?arrow_forwardThe average propensity to consume of a person is 0.6 and the marginal tax to consume is also 0.6. calculate the average propensity to save.arrow_forwardWhich of the following is true about government spending (G) and tax (T) multiplier? The G multiplier is bigger in absolute value than the T multiplier. The T multiplier is bigger in absolute value than the T multiplier. G and T multipliers are always the same size. Whether the G multiplier is larger/smaller than the T multiplier depends on the size of MPC.arrow_forward
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