Question

Calculate the government purchases multiplier if the marginal propensity to consume equals 0.75, the tax rate is 0.2, and the marginal propensity to import equals 0.3.

Answer 1

The formula for calculating the government purchases multiplier is base on the formula in getting the marginal propensity which equals to the change in the consumption over the change in the income. In the problem, by following the formula and other computations, the purchases multiplier would be 1.43