How to calculate government expenditure multiplier?
Understand the Problem
The question is asking how to compute or determine the government expenditure multiplier, which is a concept in economics that measures the effect of a change in government spending on the overall economy. The high-level approach to solve it involves using the formula related to the marginal propensity to consume (MPC).
Answer
1 / (1 - MPC)
The final answer is 1 / (1 - MPC)
Answer for screen readers
The final answer is 1 / (1 - MPC)
More Information
The government expenditure multiplier quantifies the change in aggregate income resulting from an initial change in government spending. This principle is vital in fiscal policy analysis.
Tips
A common mistake is confusing MPC (Marginal Propensity to Consume) with MPS (Marginal Propensity to Save). Remember MPC + MPS = 1.
Sources
- The Expenditure Multiplier - Vaia - vaia.com
- The Multiplier Effect - Investopedia - investopedia.com
AI-generated content may contain errors. Please verify critical information
