Question

If the multiplier for taxes taxes is negative 1.30 −1.30 and taxes are taxes are increased by ​$ 150 150 ​billion, calculate the amount by which the demand curve will ultimately shift. Shift of the demand curve​ = ​$ nothing billion. ​(Enter your response as an integer and include a minus sign if​ necessary.) Enter your answer in the answer box. Save for Later

Answer 1

The demand curve will shift to the left thus, decreasing the both, the level of price and the output of the economy.

Step-by-step explanation:

increase in taxes x tax multiplier = effect of taxes

150 billons x -1.3 = -195 billions

This will make the aggregate demand decrease.

However, if this increase in taxes is backed up with government spending will end up with a positive effect as the governement spending also has a multiplier effect which is greater than tax multiplier by one unit.