The following table shows alternative hypothetical economies and the relevant values for the marginal propensity to consume out of disposable income (MPC), the net tax rate \((t)\), and the marginal propensity to import, \(m\).

a. Recall that \(z\), the marginal propensity to spend out of national income, is given by the simple expression \(z=M P C(1-t)-m\). By using this expression, compute \(z\) for each of the economies and fill in the table.

b. Compare Economies A and B (they differ only by the value of \(m\) ). Which one has the larger multiplier? Explain why the size of the multiplier depends on \(m\).

c. Compare Economies B and C (they differ only by the value of \(t\) ). Which one has the larger multiplier? Explain why the size of the multiplier depends on \(t\).

d. Compare Economies C and D (they differ only by the value of \(M P C\) ). Which one has the larger multiplier? Explain why the size of the multiplier depends on MPC.

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Simple Multiplier 1/(1-2) Economy MPC t m 2 A 0.75 0.2 0.15 B 0.75 0.2 0.30 C 0.75 0.4 0.30 D 0.90 0.4 0.30 | |