Calculate the government-taxation multiplier for each marginal propensity to consume. Instructions: Round your answers to two decimal places.
a. The marginal propensity to consume (MPC) = 0.2, and the government spending multiplier is 1.25. The taxation multiplier is ?.
b. The marginal propensity to consume (MPC) = 0.5, and the government spending multiplier is 2.00. The taxation multiplier is ?.
c. The marginal propensity to consume (MPC) = 0.8, and the government spending multiplier is 5.00. The taxation multiplier is ?.
d. What do your results imply about the relative strength of changes in government spending versus changes in taxation for fiscal policy, all else equal?
Changes in government spending will have an indeterminate effect on GDP and income compared to changes in taxes.
Changes in government spending will have a bigger effect on GDP and income than will changes in taxes.
Changes in government spending will have an equal effect on GDP and income compared to changes in taxes.
Changes in government spending will have a smaller effect on GDP and income than will changes in taxes.