Question

2 2 a negative sign() in front of those numbers. . If it increases government purchases, real GDP will increase by $ billion suggesting an expenditures multiplier of If the government instead lowers taxes, real GDP will increase by $ billion, suggesting a tax multiplier of b. Now suppose another country's MPC is 0.8, and in this country, government seeks to reduce real GDP by either decreasing government purchases by $40 billion or by raising taxes by the same amount De Pri If it decreases government purchases, real GDP will decrease by S billion, suggesting an expenditures multiplier of If the government instead raises taxes, real GDP wil decrease by 5 billion, suggesting a tax multiplier of c. Which of the following statements best explains the difference in magnitude of the multiplier effects between the expenditures multiplier and the tax multiplier? The tax multiplier is smaller since all governments inevitably spend more than they say they wil The multiplier effect is exactly the same since both involve government policy The tax multiplier is smaller since some of the extra disposable income is saved with a tax cut The tax multiplier is larger since households spend more and spend better than governments do

Answer 1

MPG=0.75 tax Multiplic 6 = MPCB=0.60 -MPC -0.75 _-3 I-mec - 1-0.75 -060 - 15 6 tax multipliciß = (B) d) Highes MPC means higher fax multiples & taces n by $ 1 million then Noton A will experenca a larger (A real ad. (GDP & by 3 million) decrease in