If the tax multiplier is ?4 and net taxes are reduced by $200 billion, what will the output be?
A)$600 billion
B)$100 billion
C)$800 billion
D)$50,000

Question

Quizplus · Accepted Answer

If the tax multiplier is ?4 and net taxes are reduced by $200 billion, output will be $800 billion.
Key Takeaway: Always think through these problems in a logical way. If taxes go down, consumers will be more likely to spend more money, AD will increase, and overall output will increase. In this question, the tax multiplier is ?4 and the net taxes are reduced by $200 billion. You can determine the change in output by applying the tax multiplier to the change in taxes: ?4 (?$200 billion) = $800 billion.

If the Tax Multiplier Is ?4 and Net Taxes Are