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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Compute the multiplier in each of the following cases:

  1. a. MPC = 0.60
  2. b. MPC = 0.80
  3. c. MPC = 0.50

(a)

To determine

The multiplier value when MPC is 0.60.

Explanation

A multiplier is the times by which a change in the investment or income or tax can have on the level of output in the economy. Thus, the process under which a change in the autonomous spending of an individual creating additional income to another individual that increases the autonomous spending of the second individual that in turn works to generate additional income to the third individual and so on is known as the multiplier process.

The multiplier value can only be obtained with the marginal propensity to consume of the economy. The MPC is an important factor that determines the multiplier value. The multiplier value can be calculated with the help of the following equation:

Multiplier=11MPC

Thus, from the equation that is given above, it is identified that there is a direct relationship between the MPC and the multiplier value

(b)

To determine

The multiplier value when MPC is 0.80.

(c)

To determine

The multiplier value when MPC is 0.50.

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