Use the information in the table to answer the questions below - Leaving Cert Economics - Question b - 2019

The marginal propensity to save (MPS) can be calculated using the formula:

$MPS = 1 - MPC$

Substituting the given MPC value:

$MPS = 1 - 0.6 = 0.4$

The value of the multiplier (k) can be calculated using the formula:

$k = \frac{1}{1 - (MPC + MPM + MPT)}$

Substituting the values:

$k = \frac{1}{1 - (0.6 + 0.2 + 0.2)} = \frac{1}{1 - 1} = 1.25$

This multiplier of 1.25 indicates that any injection into the circular flow of income will have a 1.25 times larger effect on national income than the initial injection.

To calculate the size of the injection (I) needed to reach the full employment level, we use:

$I = \frac{Change \ in \ Income}{Multiplier}$

The change in income required is:

$Change \ in \ Income = Full \ Employment \ Level - Current \ Level = 150bn - 100bn = 50bn$

Substituting into the equation:

$I = \frac{50bn}{1.25} = 40bn$

Therefore, an injection of €40 billion is required to bring the economy to full employment.