By how much will GDP change, and will GDP be increasing, or will it be decreasing...
By how much will GDP change, and will GDP be increasing, or will it be decreasing if: MPS = .1 and ↑ taxes = $11 billion
Homework Answers
Answer
MPC=1-MPS=1-0.1=0.9
The tax multiplier=-MPC/(1-MPC)
=-0.9/(1-0.9)
=-9
The Change in GDP=change in taxes*tax multiplier
=11*(-9)
=-99 billion
the minus sign denotes the GDP decreases and it is decreased by $99 billion.
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