Suppose the tax multiplier is 2.7.Assuming prices are constant,this means that
A) a $1 decline in taxes will raise Real GDP by $2.70.
B) a $1 rise in government spending will raise both total spending and Real GDP (assuming prices are constant) by $2.70.
C) a $1 decline in taxes will lower Real GDP by $2.70.
D) a $1 rise in taxes will change interest rates by 2.70 percent compared to what they were before the $1 rise in government spending.
E) none of the above
Correct Answer:
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