If the government decreased taxes by $100,and the GDP increased $400 as a result,the MPC must be:

Name: If the government decreased taxes by $100,and the GDP increased $400 as a result,the MPC must be:
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Quizplus · Accepted Answer

The multiplier effect shows that the change in GDP is a multiple of the initial change in spending. The tax multiplier is given by -MPC/(1-MPC). Solving for MPC when the tax multiplier is 4 (since $400/$100 = 4), we find MPC = 0.8.

If the Government Decreased Taxes by $100,and the GDP Increased