ECO-4 Lecture Notes - Lecture 29: Tax Rate, Formal Calculation, Consumer Confidence
Document Summary
The multiplier can now be calculated by the following general equation: The formal calculation for the value of the multiplier is. Multiplier = 1 / (sum of the propensity to save + tax + import) Therefore, if there is an initial injection of demand of say 400m and. The marginal propensity to save = 0. 2. The marginal propensity to import goods and services is 0. 3. Then the value of national income multiplier = (1/0. 7) = 1. 43. An initial change of demand of 400m might lead to a final rise in gdp of 1. 43 x 400m = 572m. The marginal propensity to save = 0. 1. The marginal rate of tax on income = 0. 2. The marginal propensity to import goods and services is 0. 2. The value of the multiplier = 1/0. 5 = 2 the same initial change in aggregate demand will lead to a bigger final change in the equilibrium level of national income.
