Question

If the marginal propensity to consume equals ​, the tax rate equals ​, and the marginal propensity to import equals ​, what is the value of the government purchases​ multiplier?

Answer 1

Answer: 1.90

Step-by-step explanation:

The Government Purchases Multiplier given the variables is given by the expression;

Government Purchases Multiplier =
`(1)/(1 -(MPC ( 1 -T) - MPI))`

Where MPC is the Marginal Propensity to Consume,

T is tax rate and,

MPI is the Marginal Propensity to Import

Government Purchases Multiplier =
`(1)/(1 -(MPC ( 1 -T) - MPI))`

=
`(1)/(1 -(0.9 ( 1 -0.25) - 0.2))`

=
`(1)/( 1 - 0.475)`

= 1.90