Suppose the tax multiplier in an economy is -8. If the government wants to lower total spending (TS) by $8000 what should they do to Taxes (T)? Group of answer choices a. they should increase taxes by $64000 b. they should decrease taxes by $64000 c. they should increase taxes by $1000 d. they should decrease taxes by $1000
Suppose the tax multiplier in an economy is -8. If the government wants to lower total spending (TS) by $8000 what should they do to Taxes (T)? Group of answer choices a. they should increase taxes by $64000 b. they should decrease taxes by $64000 c. they should increase taxes by $1000 d. they should decrease taxes by $1000
Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter12: Fiscal Policy, Incentives, And Secondary Effects
Section: Chapter Questions
Problem 12CQ
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Question
Suppose the tax multiplier in an economy is -8. If the government wants to lower total spending (TS) by $8000 what should they do to Taxes (T)?
Group of answer choices
a. they should increase taxes by $64000
b. they should decrease taxes by $64000
c. they should increase taxes by $1000
d. they should decrease taxes by $1000
Expert Solution
Step 1
The tax multiplier shows the effect of any change in taxes on the aggregate demand of the economy. The effect of any change in taxes on the total spending can be calculated by using the following formula:
where
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