Question

The government decides to reduce its expenditure by $250. the multiplier in this economy is 4 and the tax rate is 22 percent. the net effect of this contractionary fiscal policy is to:

Answer 1

increase the budget deficit by $30
The government spending of $250 will increase.
4 x 250 = $1000.00
The tax revenue will increase
$1000 x 0.22 = 220.
The increase in budget deficit = 250 - 220 = $30