Question

F the MPC is 0.5, the tax multiplier is
a.-2.5.
b.-2.0.
c.-1.0.
d.-1.67.

Answer 1

The tax multiplier is -1.0.

Step-by-step explanation:

The tax multiplier represents the effect of changes in taxes on the overall economy. It measures the change in aggregate demand that results from a change in taxation. The formula for the tax multiplier is given by:

Tax Multiplier = -MPC / (1 – MPC) = -0.5 / (1 - 0.5) = -1.0

Therefore, the correct answer is c.-1.0.