What is marginal propensity to consume and marginal tax rate? Why is the gov expenditure multiplier is 4.8? An economy is described by the following equations (same as in Question2):C= 1,600 + 0.8(Y - T)1= 1000G = 1,800X = M = 0T= 3,000 + 0.01YIn this economy the value of government expenditure multiplier isand this value depends onapproximately 1.8: marginal tax rate.You Answeredapproximately 2.8; marginal propensity to consume and marginal tax rate.approximately 3.8; marginal propensity to consumeCorrect Answerapproximately 4.8; marginal propensity to consume and marginal tax rate.

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What is marginal propensity to consume and marginal tax rate? Why is the gov expenditure multiplier is 4.8?

MACROECONOMICS

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ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter5: An Introduction To Macroeconomics

Section: Chapter Questions

Problem 1DQ

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Example For an economy the following data is given : Consumption (C) Investment (I) 100 + 0.8 Y. %3D 150 75 Government Expenditure (G) Rate of income tax (T) %3D 0.25Y (a) Find the equilibrium level of incomę. (b) What is the value of multiplier with tax and without tax ?
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