# ECONOMICS (CBSE/UGC NET)

## ECONOMICS

### AGGREGATE DEMAND

 Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
If the spending multiplier is 5, the value of the tax multiplier must be
 A 5 B 4 C 1 D -4 E -5
Explanation:

Detailed explanation-1: -Therefore, the multiplier is 5 – which means the initial \$1 million investment would provide a \$5 million stimulus to the wider economy.

Detailed explanation-2: -9, multiplier = 10; MPC = . 67; multiplier = 3; MPC = . 5, multiplier = 2; MPC = 0, multiplier = 1.

Detailed explanation-3: -Interestingly, the tax multiplier is always smaller than the expenditure multiplier by exactly 1. So if the expenditures multiplier is 4, the tax multiplier is 3 and if the expenditures multiplier is 10, the tax multiplier is 9.

Detailed explanation-4: -How is the tax multiplier calculated? The tax multiplier is calculated using a variable called MPC (marginal propensity to consume), which is the percentage of an increase in income that is spent. Tax multiplier is then calculated using the formula:-MPC/(1-MPC).

There is 1 question to complete.