If the Marginal Propensity to Consume (MPC) is .90, estimate the total (multiplied) effect of govern

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If the Marginal Propensity to Consume (MPC) is .90, estimate the total (multiplied) effect of government purchases/spending of $100B in the economy in terms of its aggregate expenditure (Hint:  Multiplier = 1 / 1 – MPC).

Calculate the net cumulative change in aggregate expenditure if taxes were cut by $200 billion and MPC is estimated to be .75.  What if government expenditure was increased by $200 billion?

 

(Hint: Total change in expenditure = multiplier x new expenditure or spending injection)

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