Question

Suppose we have the following scenario:
Multiplier: 1.7
Tax Rate: 20%
Increase in spending: $300
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?
a. $510 billion.
b. $300 billion.
c. $198 billion.
d. $188 billion.

Answer 1

Answer:

b. $300 billion.

Explanation:

Data provided in the question

Multiplier = 1.7

Tax rate = 20%

Increase in spending = $300

Total deficit = $1 trillion

Based on the above information, the deficit that arises from the increase in spending should be $300 billion as it is financed by the government that results in budget deficit

Hence, the correct option is B. $300 billion