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)© BrainMass Inc. brainmass.com October 9, 2019, 6:32 pm ad1c9bdddf
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 ...
Explanation of the difference between the government purchases multiplier and the net tax multiplier are provided.