Multiplier

• In an economy, investment expenditure increased

by Rs.120 and government Investment is increased
by 40%.The potential GNP of the economy is
Rs.2000, Marginal propensity to save is 0.25
Other relevant information are:
• Consumption 1200
• Investment 200
• Government Expenditure 50
• Calculate the revised GNP of the economy?
 Multiplier
• Marginal propensity to import 0.1
• Marginal propensity to save 0.25
• If the autonomous investment increased by
Rs.100
• The size of the investment multiplier
• The Change in the level of income
• The change in the level of imports
• Saving function (S)= 40+0.25Yd
• Tax function (T) = .20Y
• Investment (I) = 120-12i
• G = 80
• E = 60
• M = 0.1Y
• The investment multiplier in the economy?
• Tax function 0.35Y
• Import function 0.15Y
• Savings function S = - 20+ 0.22Yd
• Investment 45
• Government expenditure 18
• Export 20
• Transfer Payments 8
Calculate the country’s budget surplus?
Consider the following information of a country:
Autonomous consumption : 150 MUC
Equilibrium output : 1,500 MUC
Planned investment : 100 MUC
Government purchases : 250 MUC
Net Exports : 50 MUC
Marginal propensity to consume for the country
will be
 Ans
• Y = C + I + G + NX
• C = a + by
• Or C = 150 + bY
• Y = C + I + G + NX
• Or, 1,500 = 150 + bY + 100 + 250 + 50
• Or, 1,500 = 150 + b(1,500) + 100 + 250 + 50
• 1,500 – 550 = 1,500b
• or 950 = 1,500b ------950/1500= .63