Homework Answers
Answer :
Formula for multiplier = k = 1/(1 - c + ct + m)
Where c = Marginal propensity to consume = 0.8
t = Marginal tax rate = 15% = 0.15
m = Marginal propensity to import = 0.15
Therefore : k = 1/(1-0.8+0.8*0.15+0.15) =2.12765957
Change in G = $96 billion increased
Change in Y = k * Change in G = 2.12765957 * ($96 billion) = $204.26 billion increase in equilibrium GDP
Answer : Option 2) $204.26 billion
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