The Tax Multiplier Is Smaller in Absolute Value Than the Government

question 177

Multiple Choice

The tax multiplier is smaller in absolute value than the government purchases multiplier because some portion of the

• A)decrease in taxes will be saved by households and not spent, and some portion will be spent on imported goods.
• B)decrease in taxes will be saved by households and not spent, and some portion will be spent on consumer durable goods.
• C)increase in government purchases will be saved by households and not spent, and some portion will be spent on imported goods.
• D)increase in government purchases will be saved by households and not spent, and some portion will be spent on consumer durable goods.
• E)decrease in government spending will be recaptured by government as taxes.

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Definitions:

Net Liability

Net liability refers to the total liabilities of an entity minus its assets, indicating a financial position where obligations exceed resources.

Accrued Interest

Interest that has been incurred but not yet paid.

Premium

An amount paid in excess of the normal or nominal value, often relating to the additional cost over the face value of securities or insurance charges beyond standard rates.