1. a. Explain the concept of the multiplier, and explain the role of the marginalpropensity to save (MPS) in determining the size of the multiplier.

(4 marks)

b. Explain how the size of the multiplier will change when the role of the marginal tax rate is brought in.

(2 marks)

c. Using the concepts in parts a and b above, calculate the slope of the AE curve and the size of the multiplier if MPS = 0.28. Then calculate the revised slope of the AE curve and the multiplier when you know that the imports and the marginal tax rate will reduce the slope of the AE curve by another 0.15.

(4 marks)