macroeconomics

multiplier effects and equilibrium level for 2 sector economy

by NOR AZIAH BINTI ABDUL MAJID
Tags: 2 sector economy, multiplier effect

marginal effect:

  •  Marginal propensity of consume (MPC)

MPC = ∆C/∆Yd,

  •  Marginal propensity of saving (MPS) 

MPS = ∆S/∆Yd

  • multiplier effect: investment
  1. able to determine the effects of any changes of investment on the national equilibrium condition.
  • multiplier effect: expenditure
  1. able to determine the effects of any changes of expenditure on the national equilibrium condition.

 

2 sector economy

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reflection

Posted on 21 May 2018, 12:59 PM
  • to know what marginal propensity of consume (MPC) and marginal propensity saving (MPS)
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effect to MPC/MPS

MPC effect:

C =100 + 0.75Y

  • Here, the multiplier is 0.75, while 100 is the autonomy consumption when Y is equal to zero.
  • MPC = ∆C/∆Y = 0.75
  • Therefore;

      ∆C = 0.75 (∆Y)

            = 0.75 (100) = 75 million

      Y = 100 + 75 à RM175 million

   MPS effect:

   When, C = 100 + 0.75Y

                    S = -100 + 0.25Y

  • Therefore;

     S = -100 + 0.25(100)Y

     S = RM-75 million

the different between expenditure multipier effect and tax multiplier effect

expenditure multiplier effect:

 the MPC=0.8.

  • ∆Y/∆I=1/((1-MPC))  

              =  1 / (1-0.8)

              = 5 (multiplier)

    Therefore,

    ∆Y =  ∆Y/∆I x ∆I

           =   5 x RM20 million

           =  RM 100 million

tax multiplier effect:

  • ∆Y/∆T=(-MPC)/(1-MPC)

                     =(-0.8)/(1-0.8)

                     = -4 (multiplier)

 

Updated on 21 May 2018, 12:59 PM; 525 page visits from 15 May 2018 to 10 October 2025