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:

Capital Resources

Assets such as buildings, machineries, and equipment used in the production of goods and services.

Car Rental

A service industry that provides temporary use of vehicles to customers for a short period of time, often ranging from a few hours to weeks.

Hydroelectric Dam

A structure that uses the energy from flowing water to generate electricity, capitalizing on water cycle and gravitational forces.

Lattes

A coffee drink made with espresso and steamed milk, often served with foam on top.