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Unformatted text preview: equilibrium income? Raise the multiplier and the equilibrium income Assume that the marginal propensity to consume equals 0.9, the income tax rate equals 0.4 and the marginal propensity to import equals 0.2. What are the marginal leakage rate and the size of the multiplier? MLR = (0.1)(1-0.4) + 0.4 + 0.2 = 0.66 The multiplier = 1/0.66 = 1.52 In the consumption function suppose Ca = 50, c = 0.65, Y = 4,000 and T = 900. Consumption expenditure is 50 + 0.65(4,000-900) = 2065 Suppose that equilibrium income is 4500 and the multiplier is 1.46. Equilibrium income would rise to 4900 if government spending rises by ____. 400/1.46 = 273.97 The IS curve represents equilibrium in the commodity market for every combination of interest rate and what? Output level....
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- Spring '11
- Macroeconomics, government spending, 100 g, 0.6YD