Question

In: Economics

If the marginal propensity to consume is 0.9, the tax rate 0.35, and the propensity to...

If the marginal propensity to consume is 0.9, the tax rate 0.35, and the propensity to import 0.2, then the value of the multiplier is (to 3 decimal places):

Expert Solution

Answer: 1.538

Multiplier = 1 / (marginal propensity to save + tax rate + propensity to import)

Marginal propensity to save = 1 - Marginal propensity to consume

Marginal propensity to save = 1 - 0.9

Or, marginal propensity to save = 0.1

Now, we get the following values,

arginal propensity to save = 0.1,

tax rate = 0.35,

propensity to import = 0.2,

Now, putting the avove values, we get the multiplier as below,

Multiplier = 1 / ( 0.1 + 0.35 + 0.2)

Or, Multiplier = 1 / 0.65

Or, Multiplier = 1.538

The value of the multiplier is 1.538

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Rahul Sunny answered 2 years ago

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