Chapter 13.A, Problem 1P

To determine

Concept Introduction:

Marginal Propensity to Consume (MPC): It is that proportion of amount which the consumer pays for consumption of goods and services, and it does not include the savings of the consumer.

Formula to calculate change in C is,

$\text{Change}\text{in}C=MPC\times \Delta YD$

Here,

• C is consumption.
• MPC is marginal propensity to consume.
• ΔYD is change in Income distribution.

Formula to calculate real GDP is,

Change in Real GDP = Change in C or Change in G

Here,

• YD is Income distribution.
• C is consumption.
• G is government expenditure.

Formula to calculate change in YD is,

$\text{Change}\text{in}YD=\Delta \text{GDP}-\Delta \text{Taxes}$

Here,

• YD is Income distribution.
• ΔGPD is change in gross domestic product.
• ΔTaxes is change in taxes.

Formula to calculate multiplier is,

$\text{Multiplier}=\frac{1}{1-\left(MPC\times \left(1-\text{Taxes}\right)\right)}$ ……(I)

Here,

• MPC is marginal propensity to consume.

(a)

Total change in real GDP, value of multiplier and comparison.

To determine

(b)

Total change in real GDP, value of multiplier and comparison.