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The multiplier and the accelerator

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Question 8

An economy has a marginal propensity to save (MPSMPSMPS) of 0.15, a marginal propensity to tax (MPTMPTMPT) of 0.25, and a marginal propensity to import (MPMMPMMPM) of 0.20.

The government reduces the basic rate of income tax such that the MPT MPT\,MPT falls to 0.15. Simultaneously, consumers increase their spending on foreign goods, raising the MPM MPM\,MPM by 0.05.

What is the resulting change in the country's national income multiplier?

A

An increase of approximately 0.150.150.15

B

A decrease of approximately 0.150.150.15

C

An increase of approximately 0.330.330.33

D

A decrease of approximately 0.050.050.05

Markscheme

The multiplier and the accelerator Questions

  1. A Level
  2. /Economics
  3. /The multiplier and the accelerator

22 exam-style questions on OCR A Level Economics The multiplier and the accelerator. Each one has a worked solution and a mark scheme showing where the marks go.

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