Answer:
[tex]K_T = -3[/tex]
Explanation:
Given
[tex]MPC_1 = 0.65[/tex]
[tex]MPC_2 = 0.75[/tex]
Required
Determine the Tax Multiplier (KT)
KT is calculated as follows;
[tex]K_T = \frac{-MPC}{1 - MPC}[/tex]
Substitute 0.75 for MPC because MPC has changed from 0.65 to 0.75
[tex]K_T = -\frac{0.75}{1 - 0.75}[/tex]
Evaluate the denominator
[tex]K_T = -\frac{0.75}{0.25}[/tex]
Divide fractions
[tex]K_T = -3[/tex]
Hence, the tax multiplier is -3
