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March 5, 2015

March 5, 2015

Posted by **jay** on Wednesday, September 20, 2006 at 5:47pm.

Can someone give me the formula for this?

Interestingly, the final answer keeps changing depending on the level of your economics course. If this your first macro-economics then use as simple multiplier. The multiplier is simply 1/MPS, where MPS is the marginal propensity to save = 1-MPC. So in your example, the multiplier = 1/.2 = 5 With a 5 multiplier, how much does govt need to spend to raise GNP by 1-trillion. Take it from here.

Now then, as you advance in econ the simple problem becomes more complicated. Govt cant really just spend more without raising taxes (or printing money). Imposing a tax will greatly reduce the multiplier. But, dont worry about this now.

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