When the marginal propensity to consume is given as $0.5$. What is the tax multiplier?

Option 1: 2 -> This would be the spending multiplier (1/(1-MPC)), not the tax multiplier.

Option 2: -2 -> This incorrectly calculates the tax multiplier by not using the proper formula.

Option 3: 3 -> This value doesn't correspond to any standard multiplier with MPC = 0.5.

Option 4: -1 -> This correctly applies the tax multiplier formula.

Hence, Option 4: -1 -> The tax multiplier formula is: Tax Multiplier = -MPC/(1-MPC). Substituting MPC = 0.5: Tax Multiplier = -0.5/(1-0.5) = -0.5/0.5 = -1. The negative sign indicates that an increase in taxes leads to a decrease in aggregate demand, which is why the tax multiplier is always negative and smaller in absolute value than the spending multiplier. -> correct