The government decides to reduce its expenditure by $250. the multiplier in this economy is 4 and the tax rate is 22 percent. the net effect of this contractionary fiscal policy is to:
increase the budget deficit by $30 The government spending of $250 will increase. 4 x 250 = $1000.00 The tax revenue will increase $1000 x 0.22 = 220. The increase in budget deficit = 250 - 220 = $30
