government expenditure needs increase by $200 to boost GDP by $800.
Mertens and Olea also discovered that reductions in marginal tax rates resulted in rises in real GDP and falls in the unemployment rate.
MPC 0.75
GDP = AY: $800 in A.
SINCE,
Y: 1/1-MPC * G
Change in the governing body Spending
800= 1/1-0.75 * G
G= $200
How does the GDP change when tax rates rise?
This more trustworthy test's findings show that tax changes have extremely significant effects: a 1% rise in exogenous taxes reduces real GDP by around 2% to 3%. These aftereffects are very enduring.
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