Elucidate the multiplier concept as it applies in this case

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Reference no: EM1355917

Congress is considering a tax credit program for those who purchase energy-efficient appliances. Proponents of the program have said that $400 million will be given directly to taxpayers and argue that this will have an economic effect that is greater than the original $400 million spent because of the multiplier effect. Many voters and taxpayers are not familiar with the concept of a multiplier in this sense. Your think tank has decided to produce a short report that will help voters better understand the proponents' claims, and Gabe has asked you to write this report.

Be sure to include the following in your report:

Give a basic explanation of how the multiplier concept is computed, including MPC.

Assume that the average American's marginal propensity to consume (MPC) is 2/5, and American producers' MPC is also 2/5.

Calculate the following, explaining how you arrived at each result:

The amount consumers will spend on new consumption

The amount of new spending from producers

The multiplier in this case

The total increase in spending from the primary spending of $400 million

Elucidate the multiplier concept as it applies in this case.

Illustrate what are the qualifications and limitations of the multiplier model?

Reference no: EM1355917

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