Assume the government increases taxes by $2.3 million,

1. Calculate the tax multiplier in the 3 scenarios below. Show ALL your work.

Scenario 1: MPC = 0.6 and MPS = 0.4

Scenario 2: MPC = 0.5 and MPS = 0.5

Scenario 3: MPC = 0.2 and MPS = 0.8

2. By how much will aggregate demand decrease by in the 3 scenarios below? Show ALL your work.

Scenario 1: MPC = 0.6 and MPS = 0.4

Scenario 2: MPC = 0.5 and MPS = 0.5

Scenario 3: MPC = 0.2 and MPS = 0.8