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?

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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).


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