Question

Suppose now that country's national income increases to $13 billion. Assuming the amount paid in taxes is fixed at $3 billion and MPC = 0.75, what will be the new household consumption?

Answer 1

Solution

$The multiplier is \frac{1}{ (1 - MPC)}$

$= \frac{1}{MPS}$

$= \frac{1 }{0.25}$

= 4.