This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Tax multipliers are based on the population's willingness to consume. The marginal propensity to consume, or MPC, is a measure of that willingness. It is defined as the amount of an additional dollar of income that a consumer will spend on goods and services. The MPC can have a value between 0 and 1. A small MPC represents a large amount of savings and a small amount of consumption. A large MPC represents a small amount of savings and a large amount of consumption. When a tax decrease occurs, consumers will spend part of the money and save part of it. Therefore, the actual change in national income as a result of a change in tax policy is equal to [(+ or -) change in taxes * - MPC] / (1 - MPC). The resulting number is called the tax multiplier. There is also a multiplier for government spending. This multiplier is derived in a There is also a multiplier for government spending....
View Full Document
This note was uploaded on 12/13/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.
- Fall '10