Question

Why tax multiplier is negative ?

Answer 1

Answer- The tax multiplier is negative in value because as taxes decrease, demand for goods and services increases. The multiplier examines the marginal propensity to consume (MPC), or ratio of income spent and not saved.

Answer 2

The tax multiplier has a negative sign, since a decrease in taxes increases consumption, aggregate expenditure, and income, while a tax increase decreases them. The term in brackets is a new multiplier, for the case of a proportional tax.

Step-by-step explanation: