**Using the concepts in parts (a) and (b) above, calculate the slope of the AE curve and the size of the multiplier if MPS = 0.35. Then, calculate the revised slope of the AE curve and the multiplier when you know that the imports and the marginal tax rate will reduce the slope of the AE curve by another 0.20.**

Explain the concept of the multiplier, and explain the role of the marginal

propensity to save (MPS) in determining the size of the multiplier.

(4 marks)

b. Explain how the size of the multiplier will change when one brings in the role of the marginal tax rate. (2 marks)

c. Using the concepts in parts (a) and (b) above, calculate the slope of the AE curve and the size of the multiplier if MPS = 0.35. Then, calculate the revised slope of the AE curve and the multiplier when you know that the imports and the marginal tax rate will reduce the slope of the AE curve by another 0.20.

(4 marks)

The economy has seen the unemployment rate decrease from 8.56 percent to 6.15 percent, the inflation rate increase from 1.4 percent to 3.2 percent, and there has been a 17 percent increase in consumer spending and a 22.5 percent increase in investment spending in the same time period.