Question

Multiple Choice: 1) Assume the MPC is 0.75 and lump sum taxes are collected by the government. What is the government tax multiplier? A) -1.33 B)-25 C)-75 D) -4 E)-3 During a Recession, the MPC tends to Increase, incrcases b) Decrease, decreases Decrease, increases the recessionary gap. 2) which c) d Increase, decreases 3) Suppose that the MPC is .75 and the U.S Federal Government reduces taxes by 10 million dollars. After 3 rounds of the multiplier process RGDP will change by a) 4.23 million dollars. b) 17.34 million c) 23.13 million d) 30 million 4) "George W. Bush's $152 billion tax rebate plan of 2008 was designed to stimulate the U.S. economy, but it didn't work." The tax cut didn't work because a) it wasn't big enough b) people chose to save the tax cut c) it created a budget deficit d) other policies offset it

Answer 1

Dale - MRC= 075 = 3 Answer= (@) = -3 government dax multiplier KI - - MRC (tax multiplies MPS MRSE 0-25 Kp =-3 - Option(e) as MP C+M Ps=1 - Answer= (d) = Increase , decrease In Great Recession of 2007 and 2009 MPC showed significant increase. IMPE= marequial propensity to consume- whoe consiemer shends more than they save which uplifted the economy they decreased recession any gap. Answer= (d) = 30 milion MP C = 0.75 tax multiplier = -3 Reduction in taxes a 10 million dollarn

Change in Real GD P2 Tax multiplier & Tax reduction -3 X 10 30 million dollars Q4. Tax cut dicent work because they were not balanced will as government Continued spending - which created $500 million budget deficit Ansevel = c= it created budget deffeit