Illustrate what are the qualifications and limitations

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Reference no: EM1358156

Congress is considering a tax credit program for those who purchase wind or solar-powered products. Proponents of the program have said that $400 million will be given directly to taxpayers and are arguing 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. 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 ½, and American producers' MPC is also ½. •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 •Explain the multiplier concept as it applies in this case. •What are the qualifications and limitations of the Multiplier Model?

Reference no: EM1358156

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