Suppose that a $30 billion increase in government spending increases Real GDP by $150 billion,and that a $10 billion tax reduction increases Real GDP by $40 billion.In this situation,the tax multiplier is _______________ the government spending multiplier.

Question

Quizplus · Accepted Answer

The government spending multiplier is 150/30 = 5, and the tax multiplier is 40/10 = 4. Therefore, the tax multiplier is less than the government spending multiplier.

Suppose That a $30 Billion Increase in Government Spending Increases