Question

2 simply question

1. MPC becomes bigger, what happened to multiplier of Government Spending. Explain the process by using Multiplier formula.​

2. Does Tax revenue increase or decrease during Recession? explain by using Automatic(built in) stabilizer such as progressive income tax.

Answer 1

. 1. Govrnment spending multiplier = 1/1-MPC . When MPC becomes bigger, then the multilplier i.e 1/1-MPC increases .

2. When there is recession , then economic growth becomes negative . Automatic stabilizer refers to how fiscal instruments affect rate of growth and help counter swings in economic cycle. In recession, automatic stabilizer will help to limit the fall in growth.With lower incomes, people pay less tax and also increases government on unemployment benefits. Lower tax collection helps to limit the fall in aggregate demand.

Therefore, tax revenue decreases during recession.