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Suppose during 2020due to relief in Taxation Marginal Propensity to Consume (MPC) will increase from 0.65 to 0.75then calculate Tax multiplier (KT).

Respuesta :

MrRoyal

Answer:

[tex]K_T = -3[/tex]

Explanation:

Given

[tex]MPC_1 = 0.65[/tex]

[tex]MPC_2 = 0.75[/tex]

Required

Determine the Tax Multiplier (KT)

KT is calculated as follows;

[tex]K_T = \frac{-MPC}{1 - MPC}[/tex]

Substitute 0.75 for MPC because MPC has changed from 0.65 to 0.75

[tex]K_T = -\frac{0.75}{1 - 0.75}[/tex]

Evaluate the denominator

[tex]K_T = -\frac{0.75}{0.25}[/tex]

Divide fractions

[tex]K_T = -3[/tex]

Hence, the tax multiplier is -3

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