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Multiplier Effect for Marginal Propensity

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I know that the multiplier is 1/(1-MPC), but I am not certain about the MPM.

Given MPC = 0.80 and Marginal Propensity to Import (MPM) = 0.5, calculate the impact of:

(a) If the Government decides to increase its purchases of goods and services by $100 billion , what would be the increase in aggregate spending?

(b) To achieve the same impact on the economy through tax changes, in what direction and how much (in dollars) would the taxes have to change?

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Solution Summary

The expert examines the multiplier effects for marginal propensity.

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(a) If the Government decides to increase its purchases of goods and services by $100 billion, what would be the increase in aggregate spending?

The Government spending multiplier = ΔY / ...

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