(d) Suppose government expenditure increases by £100m. The marginal propensity to save is estimated at 0.2, the marginal

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D Suppose Government Expenditure Increases By 100m The Marginal Propensity To Save Is Estimated At 0 2 The Marginal 1 (70.29 KiB) Viewed 81 times

(d) Suppose government expenditure increases by £100m. The marginal propensity to save is estimated at 0.2, the marginal propensity to tax is estimated at 0.1 and the marginal propensity to Import is thought to be 0.1. What will be the final increase in national income considering the multiplier effect? Using a business cycle diagram, explain what may happen if the marginal propensity to consume is under-estimated or over-estimated. Explain why a discretionary fiscal policy may be challenging to implement.