SELECT * FROM question_mgmt as q WHERE id=5436 AND status=1 SELECT id,question_no,question,chapter FROM question_mgmt as q WHERE courseId=3 AND subId=59 AND chapterId=606 and ex_no='1' AND status=1 ORDER BY CAST(question_no AS UNSIGNED) CBSE Free NCERT Solution of 12th macro-economics Government Budget and Economy explain why the tax multiplier is smaller in absol

Question:

Explain why the tax multiplier is smaller in absolute value than the government expenditure multiplier.

Answer:

The tax multiplier is smaller in absolute value than the government expenditure multiplier, as the government expenditure affects the total expenditure and taxes through the multiplier. Tax multiplier also influences disposable income that affects the overall consumption level.

The reason is explained through the following example.

Let’s assume MPC be to 0.80.

Then, the government expenditure multiplier
Tax multiplier
= - 4

This shows that government expenditure multiplier is more than tax multiplier.


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