Which of the following statements is not true in case of the balanced budget multiplier?
A. The first round contractionary effect of additional tax revenue (–b, ΔT; b = MPC) is less than the explanatory effect of additional Government expenditure (= ΔG).
B. The value of tax multiplier for proportional taxes is – b / (1 – b + bt) (where b = MPC and t = tax rate).
C. The value of balanced budget multiplier is unity when taxes are lump sum taxes.
D. None of the above
Answer:D
Which of the following statements is not true in case of the balanced budget multiplier?
A. The first round contractionary effect of additional tax revenue (–b, ΔT; b = MPC) is less than the explanatory effect of additional Government expenditure (= ΔG). B. The value of tax multiplier for proportional taxes is – b / (1 – b + bt) (where b = MPC and t = tax rate). C. The value of balanced budget multiplier is unity when taxes are lump sum taxes. D. None of the above