Final answer:
To calculate the multiplier from the given propensities to consume, save, and import, use the formula M = 1 / (1 - MPC + MPS + MPM). For an increase in the G value by 131.25, leading to a new G value of 331.25, the multiplier effect is determined to be 2.2837. This means a 300 increase in GDP requires a stimulus of 131.25.
Step-by-step explanation:
The concept of the multiplier is crucial in economics, particularly when determining the impact of fiscal policy on the economy. In this example, a G value of 331.25 is mentioned as an increase from the original level of 200, implying an increment of 131.25. To calculate the multiplier effect on the equilibrium GDP, the marginal propensities to consume, save, and import are taken into account. The formula for the multiplier is:
M = 1 / (1 - MPC + MPS + MPM)
Where MPC is the marginal propensity to consume, MPS is the marginal propensity to save, and MPM is the marginal propensity to import. For the given scenario, where 0.25 goes to taxes, 0.15 to savings, and 0.1 to imports, the calculation will be:
M = 1 / (1 - 0.75 + 0.1125 + 0.075) = 2.2837
To achieve an increase in equilibrium GDP of 300, a fiscal stimulus of 300/2.2837, equating to 131.25, is required.