Answer: 1.90
Explanation:
The Government Purchases Multiplier given the variables is given by the expression;
Government Purchases Multiplier = [tex]\frac{1}{1 -(MPC ( 1 -T) - MPI)}[/tex]
Where MPC is the Marginal Propensity to Consume,
T is tax rate and,
MPI is the Marginal Propensity to Import
Government Purchases Multiplier = [tex]\frac{1}{1 -(MPC ( 1 -T) - MPI)}[/tex]
= [tex]\frac{1}{1 -(0.9 ( 1 -0.25) - 0.2)}[/tex]
= [tex]\frac{1}{ 1 - 0.475}[/tex]
= 1.90
