Supposing that a society is divided between a rich class and a poor class. Also supposing that $0<k<1$ is the proportion of GDP going to poor class and $(1-k)$ of the GDP going to the richer section.

Now I've been ask to find out the Government expenditure multiplier and comment on its economic significance.

Now I assumed that tax is not proportional, investment is autonomous and got the equilibrium income equation as follows: $Y= (C¹+I¹+G¹+c*T¹)/(1-c)$ where $c=(c_1+c_2)$ is MPC and the capital letters in the numerator are autonomous components of aggregate demand plus tax.

From this equation we get $∆Y=∆G/(1-c_1-c_2).$

Is this correct? Now how do I use the given details of proportion of GDP for different classes?.

  • 3
    $\begingroup$ Only the first line of your question was visible (hence the close votes). I have edited it to make the whole thing visible but you might check it still says what you intended $\endgroup$ – Henry Apr 2 '18 at 9:31
  • $\begingroup$ Thanks. I've been trying to correct it but wasn't able to do so for some reason. $\endgroup$ – Shoaib Ashraf Apr 6 '18 at 2:06

Your Answer

By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service, privacy policy and cookie policy, and that your continued use of the website is subject to these policies.

Browse other questions tagged or ask your own question.