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).

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