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    government purchases multiplier vs net tax multiplier

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    Explain the difference between the government purchases multiplier and the net tax multiplier. If the MPC falls, what happens to the tax multiplier? (Fiscal multipliers)

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    https://brainmass.com/economics/business-cycles/government-purchases-multiplier-versus-net-tax-multiplier-90680

    Solution Preview

    The simple expenditures multiplier, such as that which would be used for government purchases, is the inverse of the MPS. The tax multiplier is rather - MPC/MPS. Thus if the MPC is 0.75 (and the MPS is 0.25), then an autonomous $1 trillion change in taxes results in an opposite change in aggregate production of $3 trillion. Whereas an autonomous $1 trillion change in government spending would result in a change in aggregate production in the same direction of $250 billion.

    Thus these multipliers ...

    Solution Summary

    Explanation of the difference between the government purchases multiplier and the net tax multiplier are provided.

    $2.19