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MyLabar x' @ Do Home × te pea Secure https:/ thxl.com/Student/PlayerHon rk.aspx? kld 445310494&questionld-; T2alusieu ECO 2113 MWF Fall 2017 JCJC Homework: Chapter 18 Homework Score: 0 of 1 pt 140134 (33 complete) X Concept: Tax Multiplier 1 Suppose the government increases taxes by $120 billion and the marginal propensity to consume is 0.90. By how will equilibrium GDP change? The change in equilbrium GDP is: billion. (Round your solution to one decimal place and include the minus sign if necessary)

Explanation / Answer

Ans:

change in equilibrium GDP is $1200 billion

Analysis

a) Computation of the multipler

multiplier = 1/(1-MPC)

multiplier = 1/(1-0.90)

multiplier = 1/0.1

multiplier = 10

b) Computation of change in equilibrium GDP

multiplier = (change in equilibrium GDP) / (change in autonomous spending)

10 = (change in equilibrium GDP) / $120 billion

change in equilibrium GDP = $120 billion * 10

= $1200 billion

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