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Author Question: Why is the tax multiplier smaller (in absolute value) than the autonomous spending multiplier? ... (Read 126 times)

bobbie

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on: Jun 30, 2018
Why is the tax multiplier smaller (in absolute value) than the autonomous spending multiplier?
 
  What will be an ideal response?

Question 2

If the Fed sells government bonds in the open market, it will cause:
 
  A) a downward movement along the supply curve for reserves.
  B) a shift of the supply curve for reserves to the left.
  C) a shift of the supply curve for reserves to the right.
  D) an upward movement along the supply curve for reserves.
Macroeconomics ¦ Acemoglu, Laibson, List ¦ 3rd Edition
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fffftttt

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Reply #1 on: Jun 30, 2018
Answer to Question 1

An increase in taxes first reduces household income by the amount of the tax. Because the MPC is always less than one, the decrease in consumer spending resulting from the increase in taxes is less than the actual increase in taxes.

Answer to Question 2

B


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