Assume that the marginal propensity to consume equals 0.8,the income tax rate equals 0.3,and the marginal propensity to import equals 0.2.The marginal leakage rate is ________ and the size of the multiplier is ________.
A)0.70;3.33
B)0.60;2.5
C)0.64;1.56
D)0.50;2.0

Question

Quizplus · Accepted Answer

The marginal leakage rate is calculated as the sum of the marginal propensity to save (1 - MPC), the income tax rate, and the marginal propensity to import: 0.2 + 0.3 + 0.2 = 0.64. The multiplier is 1 divided by the marginal leakage rate: 1 / 0.64 = 1.56.

Assume That the Marginal Propensity to Consume Equals 0