Solution
C=200+0.75(Y–T)
I=G=250
T=200
Therefore;
Y=C+I+G
Y=200+0.75(Y−200)+250+250
Y=200+0.75Y−150+500
Y−0.75Y=550
0.25Y=550
Y=0.25550
Y=2,200
a)Marginal propensity to save=changeindisposableincomechangeinsavings
MPS=1−0.75
Mps is 0.25 of the total income
Therefore;
MPS=0.25
b) Equilibrium
Y=2,200
c)Government expenditure multiplier
GEM=changeingovernmentspendingchangeinincome
GEM=2502,200
=8.8
Increase of 50 million will be
=1008.8×50,000,000+50,000,000
=54,400,00
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