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1. (a)Define the marginal propensity to consume and explain its role in determining the size of the multiplier. (b) Explain how the size of the
1.(a)Define the marginal propensity to consume and explain its role in
determining the size of the multiplier.
(b) Explain how the size of the multiplier will change when one brings in the role
of imports
(c) Using the concepts in parts (a) and (b) above, calculate the slope of the AE
curve and the size of the multiplier if MPC = 0.80. Then, calculate the revised
slope of the AE curve and the multiplier when you know that the marginal
propensity to import is 0.15 and the marginal tax rate (induced tax rate) is 0.2.
(4 marks
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