Re: marginal propensity to consume

Posted by Kajol on May 04, 2016; 6:51pm
URL: http://discussion-forum.276.s1.nabble.com/marginal-propensity-to-consume-tp7600353p7600368.html

In the case of taxes, multiplier = -c/(1-c)
When government reduces taxes by 200
∆Y = (-c/1-c)* ∆T
      = (-0.8/1-0.8)*(- 200)
      =( - 4)* (-200)
      = 800
So Income will increase only by 800 in this case.

On May 4, 2016 11:17 PM, "ahlashi [via Discussion forum]" <[hidden email]> wrote:

How i proceeded is :
given mpc=.8
so multiplier = 5
now if govt cut taxes by 200 , output rises by 5*200 = 1000
and thu offsets the initial fall

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