ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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1/ Propensity to save + tax + import
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1 / 1-Marginal propensity to save
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1/ Marginal propensity to consume
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1 / Aggregate Demand-imports
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Detailed explanation-1: -How is the tax multiplier calculated? The tax multiplier is calculated using a variable called MPC (marginal propensity to consume), which is the percentage of an increase in income that is spent. Tax multiplier is then calculated using the formula:-MPC/(1-MPC).
Detailed explanation-2: -The Multiplier with imports In general, Marginal Propensity to Import (MPI) is % of extra $1 of income that is spent on imports, e.g. suppose MPC = 0.9 and MPI = 0.1. This implies that C = 0.9DI + some constant and IM = 0.1Y.
Detailed explanation-3: -How Marginal Propensity to Save Is Calculated. MPS is most often used in Keynesian economic theory. It is calculated simply by dividing the change in savings observed given a change in income: MPS = S/Y.
Detailed explanation-4: -Therefore, the value of the multiplier is infinity.
Detailed explanation-5: -To find the expenditure multiplier, divide the final change in real GDP by the change in autonomous spending.