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Business, 06.05.2020 07:00 suhailalitariq

The Tax Multiplier Exercise 2 (Algo) Suppose a country's MPC is 0.8, and in this country, government seeks to boost real GDP by either increasing government purchases by $50 billion or by reducing taxes by the same amount. Instructions:

a. If it increases government purchases, real GDP will increase by $ billion, suggesting an expenditures multiplier of . If the government instead lowers taxes, real GDP will increase by $ billion, suggesting a tax multiplier of .

b. Now suppose another country's MPC is 0.6, and in this country, government seeks to reduce real GDP by either decreasing government purchases by $50 billion or by raising taxes by the same amount. If it decreases government purchases, real GDP will decrease by $ billion, suggesting an expenditures multiplier of . If the government instead raises taxes, real GDP will decrease by $ billion, suggesting a tax multiplier of .

c. Which of the following statements best explains the difference in magnitude of the multiplier effects between the expenditures multiplier and the tax multiplier?

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The Tax Multiplier Exercise 2 (Algo) Suppose a country's MPC is 0.8, and in this country, government...

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