Table 10.1 $$\begin{array} { | l | l | } \hline \text { Consurmpticn } & C = \$ 1.0 + 0.75 \mathrm { YD } \ \hline \text { Irvestmernt } & = \$ 1.9 \ \hline \text { Goverument purchases } & = \$ 2 \ \hline \text { Net exports } & = - \$ 0.5 \ \hline \text { Taxes } & = \$ 0 \ \hline \text { Goverument trarssfer } & \ \text { gayments } & = \$ 0 \end{array}$$ (all values are in billions of dollars) -Refer to Table 10.1.The value of the tax multiplier in this economy is A) 0. B) -2. C) -3. D) -5.

Question

Quizplus · Accepted Answer

The tax multiplier formula is - MPC/ (1-MPC) where MPC is the marginal propensity to consume. From the consumption function given in the table, MPC is 0.75. Therefore, the tax multiplier is -0.75/(1-0.75) = -3.

Table 101 (All Values Are in Billions of Dollars) -Refer to Table

Table 101 (All Values Are in Billions of Dollars)
-Refer to Table