Use the Following to Answer Questions

question 359

Multiple Choice

Use the following to answer questions :
Scenario: Fiscal Policy
Consider the economy of Arcadia. Its households spend 75% of increases in their income. There are no taxes and no foreign trade. Its currency is the arc. Potential output is 600 billion arcs.
-(Scenario: Fiscal Policy) Look at the scenario Fiscal Policy. Suppose the government decides to tax its citizens. The tax multiplier is:

• A)greater than the government spending multiplier.
• B)less than the government spending multiplier.
• C)zero, because changes in taxes have no effect on aggregate demand.
• D)impossible to determine.

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