Retailers Bracing for Spending Slowdown
Retailers across the country are bracing for an anticipated slowdown in consumer spending. As of January 1, the Social Security payroll tax rate moved back up from 4.2 to 6.2 percent. That will reduce take-home pay by about 2 percent. That means that the 153 million workers in this country will have an average of $1,500 less to spend this year. For retailers, that implies less spending on groceries, household goods, and dining out. According to an estimate by Citigroup, the jump in the payroll tax will leave $110 billion less in consumers’ pockets. That has retailers worried.
If the MPC was 0.90, and using the Citigroup estimate,
a. How much did consumer spending decline initially in response to the 2013 payroll tax hike?
Answer: $99 billion
b. What was the ultimate decline in aggregate demand after all multiplier effects?
_______ billion
