In a simple Keynesian model of a closed economy, the marginal propensity to consume (MPC) is . If an income tax at of income is introduced then the simple Keynesian expenditure multiplier changes by:
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1 mark, −0.33MacroeconomicsKeynesian cross and the multiplierGovernment spending and tax multipliersModerateabout 2 min
UoH 2021 Question 3: Keynesian cross and the multiplier
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In a simple Keynesian model of a closed economy, the marginal propensity to consume (MPC) is 0.8. If an income tax at 25% of income is introduced then the simple Keynesian expenditure multiplier changes by: (A) +25% (B) -25% (C) +50% (D) -50%
Keynesian cross and the multiplier has come up 167 times in 7 exams since 2006.
What this question tests
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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