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government spending multiplier

Please see the attached file.

1. If the government spending multiplier is 6, what is the tax multiplier?

2. You are given this account for a bank:

ASSETS LIABILITIES

RESERVES $ 500 $ 3,500 DEPOSITS
LOANS 3,000

The required reserve ratio is 10 percent.

A. How much is the bank required to hold as reserves, given its deposits of $ 3,500?

B. How much are its excess reserves ?

C. How much can the bank increase its loans ?

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Solution Preview

1. The government spending multiplier is 1/MPS and the tax multiplier is -MPC/MPS = -(1-MPS)/MPS.). Its absolute value is always one less than the simple multiplier and ...

Solution Summary

Calculation of the tax multiplier given the government spending multiplier

$2.19