If the Absolute Value of the Tax Multiplier Equals 1

question 299

Multiple Choice

If the absolute value of the tax multiplier equals 1.6,real GDP is $13 trillion,and potential real GDP is $13.4 trillion,then taxes would need to be cut by ________ to restore the economy to potential real GDP.

• A)$250 billion
• B)$400 billion
• C)$640 billion
• D)None of the above are correct.Taxes should be increased in this case.