consider a keynesian model where: the marginal propensity to import out of income is 0.25, export 10 million, autonomous import 15 million, tax rate 0.2, government spending 30 million, investment 25 million autonomous consumption 20 million, and marginal propensity to consume 0.8. what is the value of the multiplier?

Answer 1

In a Keynesian model, the multiplier can be calculated based on the marginal propensity to consume (MPC) and the marginal propensity to import (MPM).

The general formula for the multiplier (k) is given by:

\[ k = \frac{1}{1 - MPC + MPM} \]

Where:

• \(MPC\) is the marginal propensity to consume,
• \(MPM\) is the marginal propensity to import.

Given the values:

• \(MPC = 0.8\)
• \(MPM = 0.25\)

Now substituting these values into the formula:

\[ k = \frac{1}{1 - 0.8 + 0.25} = \frac{1}{1 - 0.8 + 0.25} = \frac{1}{0.45} \]

Calculating that gives:

\[ k \approx 2.22 \]

Thus, the value of the multiplier in this Keynesian model is approximately 2.22.