A Not So Simple Multiplier reactempty: 2724 In the Keynesian Macro Model II where aggregate expenditures equals aggregate output and "leakages" equals "injections" we have the equation: reactempty: 2728 reactempty: 2731 Remember that is the marginal propensity to consume: MPC and is the tax rate on Y reactempty: 2735 And the marginal propensity to consume is the additional consumption expenditures that are induced by additional income. Let's set the MPC = = 0.8 = 4/5 = 80% reactempty: 2739 round Y = cumulati C= Y ve Y Yd 1 100 20 64 2 64 12.8 41 164 3 41 8.2 26.2 205.0 4 26.2 5.2 16.8 231.2 5 16.8 3.4 10.7 248.0 6 10.7 2.1 6.9 258.7 ... 276.9 13 0 .5 0.1 Yd ... n 277.8 reactempty: 2743 So the initial change in Y of 100, through the circular flow of income and expenditures leads to an overall increase in Y of 500. reactempty: 2747 The formula for the not so simple multiplier: reactempty: 2751 mult 1 If = MPC = 0.8, and the tax rate = 20%, then the not so simple multiplier is... Numeric Answer: mult 2 If = MPC = 0.75 = 3/4, and the tax rate is 20%, then the no so simple multiplier is... Numeric Answer: mult 3 If = MPC = 0.8, and the tax rate = 25% = 0.25, then the not so simple multiplier is... Numeric Answer: mult 4 Adding a positive tax rate, , the not so simple multiplier is A less than the simple multiplier B the same as than the simple multiplier C greater than the simple multiplier