2019 May (Multiplier) Paper 3 HL
(I) Using this information, calculate the value of the Keynesian multiplier.
Citizens spend 10% on imported goods = MPM = 10% = .1
Citizens pay a tax rate of 20% = MPT = 20% = .2
Citizens have a marginal propensity to save of 10% = MPS = 10% = .1
1/. 4 = 2.5 = Multiplier
(j) Using your answer to part (I), calculate the increase in government spending necessary to increase nominal GDP by $100 billion.
NGDP/Multiplier = Amount of Gs.
100b/2.5 = 40b of Government Spending
Gs x Multiplier = NGDP increase
40b x 2.5 = 100b in NGDP
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