Answer:
a) -4
b) -12 billion
Explanation:
Question 1) Calculate the Tax Multiplier
FIrst, we know that the Marginal Propensity to Consume = 0.8
Based on this, the formula is as follows:
Multipier = -Marginal Propensity to Consume/ (1-Marginal Propensity to Consume)
Multiplier = -0.8/ (1-0.8) = -0.8/ 0.2 = -4
The Tax Multiplier = -4
Question 2) The resulting change in the equilibrium quantity of real GDP demanded
Change in Demand = Change in Tax x The Tax Multiplier
Change in Demand = $3 billion x -4
= -12
This means that the equilibrium quantity of the real GDP is -12 billion
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Hope this helps! :)
Explanation:
