The MPC_d= 0.75. If the Chancellor of the Exchequer decides to cut taxes by £35 million, what would be the effect on national income?

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The multiplier (MPC_d) is given as 0.75, which means the marginal propensity to consume (MPC) is 0.75. The formula for the multiplier is 1/(1-MPC), so the multiplier is 1/(1-0.75) = 4. A tax cut of £35 million will increase disposable income and thus consumption, leading to an increase in national income. The effect on national income is the tax cut multiplied by the multiplier, which is £35 million * 4 = £140 million. However, the correct interpretation of the given multiplier value and its application indicates a mistake in my calculation process. The correct multiplier should be calculated as 1/(1-0.75) = 4, and applying this correctly to the tax cut of £35 million, the increase in national income should indeed be £35 million * 4 = £140 million, which aligns with option B, not A. My initial guidance was incorrect due to a misinterpretation of the multiplier's application.

The MPCd = 0

The MPC_d= 0