If the Absolute Value of the Tax Multiplier Equals 1

question 261

Multiple Choice

If the absolute value of the tax multiplier equals 1.6, real GDP is $1.3 trillion, and potential real GDP is $1.34 trillion, then taxes would need to be cut by ________ to restore the economy to potential real GDP.

• A)$15 billion
• B)$25 billion
• C)$40 billion
• D)$64 billion
• E)None of the above is correct.Taxes should be increased in this case.

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