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In an open economy mpc is seven tenths and mpi is two tenths The economy is initially in equilibrium What is the effect on GDP of reducing net tax by 10 billion?
the multiplier is 1/(MPC+MPI) which in this case is 1/0.1 = 10 the net effect on GDP is 10 billion * 10 = 100 billion. this is under the assumption that government spending has not reduced by 10billion to cover the reduced revenue. If this occured the net change would be zero.
If the MPC is point 5 the tax multiplier would be what?
Since MPC+MPS=1 Then MPS=1-0.5=0.5 Tax Multiplier= -(MPC/MPS)=-0.5/0.5= -1
What is the tax multiplier if MPC 0.75?
3
What is the multiplier if MPC is 0.25?
1.33The answer is 1.33
How is the multiplier concept computed including MPC?
100
If you know tax multiplier how do you figure government spending multiplier?
you could do it two ways .If you have the MPC could divide it
In an open economy mpc is seven tenths and mpi is two tenths The economy is initially in equilibrium What is the effect on GDP of reducing net tax by 10 billion?
the multiplier is 1/(MPC+MPI) which in this case is 1/0.1 = 10 the net effect on GDP is 10 billion * 10 = 100 billion. this is under the assumption that government spending has not reduced by 10billion to cover the reduced revenue. If this occured the net change would be zero.
Why tax multiplier is always be smaller than govt spending multiplier?
If the full multiplier for G (i.e. ignoring crowding out effects) is = change in G/Multiplier Then the tax multiplier is = change in T x marginal propensity to consume/multiplier since the mpc is between 0 and 1 the tax multiplier is less. Intuitively it is not difficult to see why, the change tax enters spending decisions through consumption and consumption is dependant on the mpc. Whereas as G affects spending decisions directly - it is a injection into the economy that does not have to work through some indirect source to have an effect on the economy.
If the MPC is point 5 the tax multiplier would be what?
Since MPC+MPS=1 Then MPS=1-0.5=0.5 Tax Multiplier= -(MPC/MPS)=-0.5/0.5= -1
What is the tax multiplier if MPC 0.75?
3
What is the multiplier if MPC is 0.25?
1.33The answer is 1.33
If the MPC is .67 then the oversimplified multiplier is what?
3.00
How can you derive the tax rate multiplier?
Taxation Multiplier = - (MPC) / (1 - MPS) Where, MPC = marginal propensity to consume, and MPS = marginal propensity to save.
If the value of multiplier is 2.49 then find out.what is MPC and MPS?
MPS =0.401 mpc = 0.509
What is an example of a multiplier effect?
K= I/(1-MPC) MPC is a marginal propensity to consume I = investment
How is the multiplier concept computed including MPC?
100
What is tax multiplier?
The formula for this simple tax multiplier. (m[tax]), is: m[tax] = - MPC x 1 ---- MPS = - MPC ---- MPS Where MPC is the marginal propensity to consume and MPS is the marginal propensity to save. This formula is almost identical to that for the simple expenditures multiplier. The only difference is the inclusion of the negative marginal propensity to consume (- MPC). If, for example, the MPC is 0.75 (and the MPS is 0.25), then an autonomous $1 trillion change in taxes results in an opposite change in aggregate production of $3 trillion.
