Question

With following values, c = 0,7, t = 0,41 and m = 0,86 use the multiplier and calculate the potential impact of the President’s R791 billion infrastructure investment plan on the value of GDP in 2021. 

Answer 1

the formula of multipliers =$\frac{dy}{d}=[\frac{1}{1-b(1-t)+m}]$

let's say investment increases by 791

then

$\frac{dy}{791}=[\frac{1}{1-0.7(1-0.41)+0.86}]$

$\frac{dy}{791}=[\frac{1}{1-0.7(0.59)+0.86}]$

$\frac{dy}{791}=[\frac{1}{1-0.413+0.86}]$

$\frac{dy}{791}=[\frac{1}{1.447}]$

$\frac{dy}{791}=0.691$

$dy=546.648$

GDP in 2021 increases by 546.648 bn