How is the Keynesian Multiplier calculated? What is the primary assumption behind the 20 multiplier effect? C + I + G + (X-M) = GDP = AI = C + S + (T- R) (a) What is the change in Aggregate Income (AI) and AI components to an increase of$100 billion in government spending on an $1,000 billion economy whose members exhibited a 15% savings rate coupled with a 10% net tax rate? (b) If the initial savings rate in this $1,000 billion economy were to decrease to 5% andinitial transfer payments were to increase by $100 billion to $150 billion; What would be the effect on Aggregate Income (AI) and AI components to a $100 billion decrease in government spending on this $1,000 billion economy. Show the table and all calculations for Initial GDP (and AI components), Change in AI components and Final AI components.

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1How is the Keynesian Multiplier calculated 2What is the primary assumption behind the 20 multiplier effect 3C I G XM GDP AI C S T R a What is the cha... View the full answer