Final answer:
The tax multiplier can be calculated using the formula -MPC / (1 - MPC). With an MPS of 0.10, the MPC is 0.90, resulting in a tax multiplier of -9.
Step-by-step explanation:
If the Marginal Propensity to Save (MPS) is 0.10, the marginal propensity to consume (MPC) is equal to 1 - MPS, which would be 0.90 in this case. To calculate the tax multiplier, we use the formula:
Tax Multiplier = -MPC / (1 - MPC)
Given that the tax rate is 10% and does not directly affect the calculation of the tax multiplier, we ignore it for this step. Substituting the value of MPC which is 0.9 we get:
Tax Multiplier = -0.9 / (1 - 0.9) = -0.9 / 0.1 = -9.
The negative sign indicates that an increase in taxes will decrease aggregate demand by a multiple of the tax change.