In the short run,the impact of a $50 billion tax package on GDP will be
A) greater than $50 billion because of the multiplier effect
B) less than $50 billion because of the tax code
C) greater than $50 billion because of the tax code
D) exactly $50 billion
E) greater than $50 billion because of crowding out.

Question

Quizplus · Accepted Answer

The multiplier effect suggests that an initial injection of spending (or reduction in taxes) leads to a greater increase in GDP. Therefore, a $50 billion tax package will have a greater impact on GDP than $50 billion.

In the Short Run,the Impact of a $50 Billion Tax