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:

Price Taker

A market participant that accepts market prices as given and has no influence to alter the price of the good or service.

Buyer

A person or organization that purchases goods or services.

Law Of Demand

The economic principle stating that, all else being equal, as the price of a good or service decreases, consumer demand for it will increase, and vice versa.

Quantity Demanded

The quantity demanded is the amount of a good or service that consumers are willing and able to purchase at a given price, holding all else constant.