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.

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Definitions:

Operating Assets

Assets used by a business in its day-to-day operations to generate revenue, excluding investments and non-essential assets.

Return On Investment

An evaluation tool for gauging the productivity or returns of an investment, achieved by dividing the net earnings by the investment's expense.

Investment Opportunity

An economic or financial situation in which one might invest money with the expectation of achieving a positive return.

Combined Turnover

The total revenue generated from all sources by a company or group of companies, without deducting any costs or losses.