An economy is at less than full employment with an aggregate 'worker' and an aggregate 'capitalist', the worker having a higher marginal propensity to consume. Both pay income tax on the same linear schedule. The government's budget is balanced and a lump-sum income transfer is made from the capitalists to the workers. Then the government's
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Keynesian cross and the multiplier has come up 167 times in 7 exams since 2006.
This question is on Multiplier extensions: induced investment and class saving, part of Keynesian cross and the multiplier in Macroeconomics.
The multiplier when investment responds to income or when groups have different saving behaviour.
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Question from the DSE 2010 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.