ECONOMICS
FISCAL POLICY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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$150
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$90
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$375
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$562.5
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$0
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Detailed explanation-1: -To calculate the maximum change in GDP, use the spending multiplier. The formula for the spending multiplier is 1/MPS or 1/(1-MPC). In the example above, the multiplier would be 5 (1/. 2).
Detailed explanation-2: -How Do You Calculate Marginal Propensity to Consume? To calculate the marginal propensity to consume, the change in consumption is divided by the change in income. For instance, if a person’s spending increases 90% more for each new dollar of earnings, it would be expressed as 0.9/1 = 0.9.
Detailed explanation-3: -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-4: -The Spending Multiplier can be calculated from the MPC or the MPS. Multiplier = 1/1-MPC or 1/MPS