Question

Suppose during 2020 due to relief in Taxation Marginal Propensity to Consume (MPC) will increase from 0.65 to 0.75 then calculate Tax multiplier (KT).

Answer 1

Tax multiplier = 3

Step-by-step explanation:

Given:

Current MPC = 0.75

Find:

Tax multiplier

Computation:

Tax multiplier = MPC / [1 - MPC]

Tax multiplier = 0.75 / [1 - 0.75]

Tax multiplier = 0.75 / 0.25

Tax multiplier = 3