this is an econ question for my econ class... any help?

Question

When tax revenue is tied to income, changes in income affect the budget deficit. Suppose the tax rate in an economy is 30% and the government is running an initial deficit. The government then increases expenditures by $200 million. If the multiplier is 2, by how much does the budget deficit increase after the multiplier takes effect? (Round to the nearest million dollars.)

Answer 1

You've given insufficient information. We'd have to know the initial revenue and expenses. Is the 30% increase "across the board?" Is there a significant gap between rich and poor? What percentage of the gross national product is $200 million?

Sorry!

Answer 2

When government spending increases by USD200 mn, the National Income increases by USD400 mn, thanks to the multiplier of 2. This additional USD400 mn, creates a tax revenue of USD120 mn (30% of 400). Therefore, the budget revenue rose by USD120 mn while budget expenses rose by USD200 mn, which raised the budget deficit by USD80 mn.