Question

Suppose that in an economy MPC is

estimated to be 0.80. Congress has decided that 90 percent of an
increase in a specific government expenditure initiative​ (G) must
be"

Answer 1

The multiplier refers to how many times a dollar will turnover in the economy based on the Marginal Propensity to Consume (MPC). If the MPC is 80%, then out of every one dollar received by a consumer, $0.80 will be spent. The impact of the multiplier is diluted when taxes and expenditure on imports are taken into account.

Step-by-step explanation:

The multiplier refers to how many times a dollar will turnover in the economy. It is based on the Marginal Propensity to Consume (MPC) which tells how much of every dollar received will be spent. If the MPC is 80%, then out of every one dollar received by a consumer, $0.80 will be spent. This $0.80 is received by another person. In turn, 80% of the $0.80 received, or $0.64, will be spent, and so on. The impact of the multiplier is diluted when the effect of taxes and expenditure on imports is considered. To derive the multiplier, take the 1/1 - F; where F is equal to percent of savings, taxes, and expenditures on imports.