Question
If the marginal propensity to save (MPS) is 0.10, the marginal propensity to import is 0.05 and the tax rate (t) is 18%, then the expenditure multiplier equals:
Answers
GPT-5 mini
Use the open-economy multiplier with proportional taxes:
k = 1 / [1 - c(1 - t) + m]
where c = MPC = 1 − MPS = 0.90, t = 0.18, m = 0.05.
c(1 − t) = 0.90 × 0.82 = 0.738
Denominator = 1 − 0.738 + 0.05 = 0.312
k = 1 / 0.312 ≈ 3.21
So the expenditure multiplier ≈ 3.21.
k = 1 / [1 - c(1 - t) + m]
where c = MPC = 1 − MPS = 0.90, t = 0.18, m = 0.05.
c(1 − t) = 0.90 × 0.82 = 0.738
Denominator = 1 − 0.738 + 0.05 = 0.312
k = 1 / 0.312 ≈ 3.21
So the expenditure multiplier ≈ 3.21.