Economics (AS & A Level) · Oct / Nov 2022 · Paper 31 · Question 26

In an economy, the marginal propensity to consume is 0.2, the marginal propensity to save is 0.3, the marginal propensity to tax is 0.3 and the marginal propensity to import is 0.2 at all levels of income. What would be the most likely consequence of an increase in government expenditure of $1000m?

1. AImport expenditure would increase by $200m.
2. BImport expenditure would increase by $1000m.
3. CTax revenues would increase by $75m.
4. DTax revenues would increase by $375m.

As printed in the paper