Table 11.1

-Refer to Table 11.1. What is the value of the tax multiplier?

Question

Table 11.1
 
-Refer to Table 11.1. What is the value of the tax multiplier?

Quizplus · Accepted Answer

The tax multiplier can be calculated using the formula -MPC/MPS, where MPC is the marginal propensity to consume and MPS is the marginal propensity to save. From the table, we can see that the change in consumption due to a change in taxes is -375 and the change in disposable income is -200. Therefore, MPC = -375/-200 = 1.875. MPS is the opposite of the MPC, so MPS = -1/1.875 = -0.53. The tax multiplier is therefore -1.875/-0.53 = 3.54, which is closest to answer B (-1.875).

Table 11.1 -Refer to Table 11.1. What Is the Value of the the Value