Question

Suppose mpc = 0.5, autonomous consumption = 5000, tax rate = 0.4. what is the value of government multiplier?

Answer 1

The government expenditure multiplier is the ratio of change in total output induced by an expenditure change. 

If MPC is equal to 0.5 that is 5 ÷ 10
Multiplier: 1 ÷ (1 - MPC) = 1 ÷ (1 - 0.5) 
= 1 ÷ (0.5)
=2

So with a marginal propensity to consume of 0.5 the government multiplier used would be 2. 

With the multiplier effect small changes in the government's consumption can lead to much larger changes in the total output.

Answer 2

Answer:

the vale is 2.

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