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6 March, 05:04

The government decides to reduce its expenditure by $250. the multiplier in this economy is 4 and the tax rate is 22 percent. the net effect of this contractionary fiscal policy is to:

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  1. 6 March, 08:25
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    increase the budget deficit by $30

    The government spending of $250 will increase.

    4 x 250 = $1000.00

    The tax revenue will increase

    $1000 x 0.22 = 220.

    The increase in budget deficit = 250 - 220 = $30
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