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Select Any One Of the Following Options: With the Consumption function: C=200+ 0.75(Y-T) and each of G, I and T being 100 what is the value of the Government purchase Multiplier?2314

Question

Select Any One Of the Following Options: With the Consumption function: C=200+ 0.75(Y-T) and each of G, I and T being 100 what is the value of the Government purchase Multiplier?2314

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Solution

The government purchase multiplier can be calculated using the formula:

Multiplier = 1 / (1 - MPC)

where MPC is the marginal propensity to consume. In the given consumption function C=200+ 0.75(Y-T), the MPC is 0.75.

So, the government purchase multiplier would be:

Multiplier = 1 / (1 - 0.75) = 4

Therefore, the value of the government purchase multiplier is 4.

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