Consider a simple macro model with government and foreign trade and where the price level is taken as given.The simple multiplier is equal to
A)1/(1 - MPC).
B)1/MPC.
C)1/(1- MPS - t).
D)1/(1 - (MPC(1 - t)- m )).
E)1/(1- (MPS(1 - t)- m )).

Question

Quizplus · Accepted Answer

In a simple macro model that includes government and foreign trade, where the price level is constant, the simple multiplier is given by 1/(1 - (MPC(1 - t) - m)). Here, MPC stands for the marginal propensity to consume, t represents the tax rate, and m is the marginal propensity to import. This formula accounts for the effects of taxes and imports on the multiplier.

Consider a Simple Macro Model with Government and Foreign Trade