While expansionary and contractionary fiscal policy both directly affect the national income

While expansionary and contractionary fiscal policy both directly affect the national income

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While expansionary and contractionary fiscal policy both directly affect the national  income, the ultimate change in output is not always equal to the policy change. That is,  there are factors that increase or decrease the efficacy of fiscal policy. These factors are  called multipliers. In particular, there are two types of multipliers. There are tax  multipliers and government spending multipliers. Each of these will be discussed in  detail in the proceeding paragraphs.  Tax multipliers are based on the population's willingness to consume. The marginal  propensity to consume, or MPC, is a measure of that willingness. It is defined as the  amount of an additional dollar of income that a consumer will spend on goods and  services. The MPC can have a value between 0 and 1. A small MPC represents a large  amount of savings and a small amount of consumption. A large MPC represents a small 
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This note was uploaded on 12/13/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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While expansionary and contractionary fiscal policy both directly affect the national income

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