If the tax multiplier is -1.5 and a $200 billion tax increase is implemented,what is the change in GDP,holding everything else constant? (Assume the price level stays constant.)

Question

Quizplus · Accepted Answer

The tax multiplier effect indicates how much the GDP changes in response to a change in taxes. A tax multiplier of -1.5 means that for every dollar increase in taxes, GDP decreases by $1.50. Therefore, a $200 billion tax increase would lead to a $300 billion decrease in GDP ($200 billion * 1.5 = $300 billion).

If the Tax Multiplier Is -1