The fiscal multiplier for government spending is 2.1, and the multiplier for taxes is -1.7. The government increases its taxes by $7 million. After the multiplier effect, GDP will:

Question

Quizplus · Accepted Answer

The fiscal multiplier for taxes is -1.7, meaning for every $1 increase in taxes, GDP will decrease by $1.7. With a $7 million increase in taxes, the impact on GDP is -1.7 * $7 million = -$11.9 million, indicating GDP will fall by $11.9 million.

The Fiscal Multiplier for Government Spending Is 2