Question

Consider a closed economy wherein C = 0.8 Yd

, t = 0.25 , I = 900 – 50i , G = 800, L = 0.25 Y – 62.5i , M/P = 500 Where in Yd = Disposable Income, t is the tax rate, i is the interest rate, G is the government spending. Calculate the Fiscal Policy Multiplier for the above question

A 2.5

B 1.5

C 1.67

D 1.33

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Consider a closed economy wherein C = 0.8 Yd

Solution