Suppose Y (output) = 4,000, T (taxes) = tY where t, the marginal tax rate, is 0.3, and government spending, G = 1,000. This is a closed economy. Now suppose G increases by 200 to 1,200, and the new level of Y after this increase is Y = 4,400. Then, the marginal propensity to consume is
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Keynesian cross and the multiplier has come up 167 times in 7 exams since 2006.
This question is on Government spending and tax multipliers, part of Keynesian cross and the multiplier in Macroeconomics.
The effect on income of changes in government spending, lump-sum taxes, transfers and income taxes.
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Question from the JNU SIS 2019 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.