If we have a $10.9 trillion contractionary gap and the MPC is .86, how much will net taxes need to decrease in order to close the gap?
To find this answer, we need to know the formula for the tax multiplier. This is given as
Tax multiplier = 1 – spending multiplier.
Therefore, we need to know the spending multiplier. It is found through the equation
Multiplier = 1/(1- MPC).
(The entire section contains 131 words.)
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