A $10 Billion Reduction in Taxes Increases Real GDP by $90

question 62

Multiple Choice

A $10 billion reduction in taxes increases Real GDP by $90 billion. Assuming a constant price level,what does the tax multiplier equal?

• A) 100
• B) 9
• C) 80
• D) 190
• E) 0.11

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Definitions:

Capital Surplus

Funds received by a company from the sale of shares in excess of their stated par value, recorded as equity in the financial statements.

Par Value

A face value assigned to a share of stock by the company's charter.

Cash Flow Test

A financial analysis method used to determine the liquidity of a company by assessing its ability to generate cash to pay its short-term obligations.

Equity Insolvency Test

A method to determine if a company can meet its financial obligations as they come due without having to sell off assets.