If a $15 billion reduction in taxation produces a change of $20 billion in output,the value of the government taxation multiplier is ________.
A) 0.75
B) 1.3
C) 5
D) 35

Question

Quizplus · Accepted Answer

The government taxation multiplier is the change in output divided by the change in taxation. It can be calculated as:
Taxation Multiplier = Change in Output / Change in Taxation

Given,
Change in Taxation = -$15 billion (negative sign indicates a reduction in taxation)
Change in Output = $20 billion (positive sign indicates an increase in output)

Using the formula, we get:
Taxation Multiplier = $20 billion / (-$15 billion)
Taxation Multiplier = -$1.33

However, the taxation multiplier is often expressed as a positive number. Therefore, by taking the absolute value, we get:
Taxation Multiplier = 1.33

Rounding off to one decimal place, we get:
Taxation Multiplier = 1.3

Therefore, the value of the government taxation multiplier is 1.3.

If a $15 Billion Reduction in Taxation Produces a Change