The change in GDP that results from an increase in taxation is known as the tax multiplier. When the government raises taxes and MPC is , the tax multiplier also rises, which causes the aggregate demand to move to the left. However, this choice is flawed because the tax multiplier is $
billion.
Tax multiplier: MPC1 MPC=
The selection is in error. The increase in taxes would reduce consumers' disposable income and cause a decline in spending. As a result, aggregate demand will decrease and move $billion to the left. The assertion is untrue. The aggregate demand would decline initially as a result of a tax rise and later on due to a change in disposable income. Although.
Learn more about tax multiplier here.
#SPJ4
Answer: Option (B) is correct.
Explanation:
The nominal GDP is equal to the real GDP in the base year, that's why GDP deflator in the base year is equal to 100.
GDP deflator is calculated as the nominal GDP divided by the real GDP multiply by 100. It is shown as:
GDP deflator =
GDP deflator would be used as the conversion factor that transformed the real GDP into nominal GDP.