Question

The tax multiplier equals the change in​ ________ divided by the change in​ ________.

Answer 1

The tax multiplier equals the change in real GDP divided by the change in taxes.

Define the term tax multiplier?

A measure of the change in the Gross Domestic Product (GDP) in reaction to a change in governmental taxes is the tax multiplier.

• Depending on whether the change in taxes affects all components of the GDP or just consumption, the TM can be simple or complex.
• Governments, investors, and economists frequently employ TM to examine the effects of taxation changes on aggregate production.
• The straightforward tax multiplier is now more typical.
• It suggests that a change in aggregate production like a result of a change in government taxation only affects consumption expenditures.

Thus, the real GDP change divided by the change in taxes is the tax multiplier.

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