Taxes are reduced by $15 billion and income increases by $75 billion. The value of the tax multiplier is

Question

Quizplus · Accepted Answer

The tax multiplier is defined as the ratio of the change in income to the change in taxes:

tax multiplier = change in income / change in taxes

We are given that taxes are reduced by $15 billion and income increases by $75 billion. Therefore:

tax multiplier = 75 / (-15) = -5

Hence, the answer is (C).

Taxes Are Reduced by $15 Billion and Income Increases by $75