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Suppose we have the following scenario: Multiplier: 1.2 Tax Rate: 16% Increase in spending: $175 Billion Total Deficit in the previous year: $1 Trillion Based on the information provided what is the deficit that arises from the increase in spending from the government

Respuesta :

Tundexi

Answer:

Deficit = $141.4 billion

Explanation:

Multiplier (K) = ΔY {GDP(income)} / ΔI {Govt spending}

ΔY = K * ΔI

ΔY = 1.2 * $175 billion

ΔY = $210 billion (income)

Tax applicable on income that generate revenue:

Revenue = 210 billion * 16%

Revenue = 210 billion * 0.16

Revenue = $33.6 billion

Deficit = Government spending - Revenue

Deficit = $175 billion - $33.6 billion

Deficit = $141.4 billion