If the marginal propensity to consume is 0.9,then the tax multiplier will be:

Question

Quizplus · Accepted Answer

The tax multiplier can be calculated using the formula: Tax Multiplier = - MPC / (1 - MPC). If the MPC is 0.9, then the tax multiplier can be calculated as -0.9 / (1 - 0.9) = -9. This means that a $1 increase in taxes will lead to a $9 decrease in aggregate demand. Since the tax multiplier is negative, it indicates a contractionary effect on the economy. The tax multiplier is less than 10, making choice (C) the correct answer.

If the Marginal Propensity to Consume Is 0