algebraic definition of national income equilibrium shown in Equation (8.16) and the related expression for the expenditure multiplier, Equation (8.17). If we substitute the assumed values in this example into the multiplier formula we get: The multiplier is the total change in GDP for a one dollar initial increase in aggregate demand. In this example, given the values of the marginal propensity to consume, the tax rate and the marginal propensity to import) the multiplier is calculated to be 1.785 (rounded). That means, that if autonomous expenditure (for example, government spending) rose by $100, the total change in GDP, after the economy adjusts to the higher production and income levels, would be $178.50 (rounded). Changes in the magnitude of the expenditure multiplier Equation (8.17) defined the expenditure multiplier as ?Y/?G = 1/[1 - c(1 - t) + m], which means that its size depends on the marginal propensity to consume (c), the tax rate (t) and the marginal propensity to import (m). The following conclusions can be drawn at this stage: The multiplier is larger (smaller) the larger (smaller) is the marginal propensity to consume (c). The multiplier is larger (smaller) the smaller (larger) is the marginal propensity to import (m). The more open the economy to trade, the lower is multiplier. The multiplier is larger (smaller) the smaller (larger) is the tax rate (t). A higher marginal propensity to consume means that each successive round of induced consumption spending is larger, other things equal. Given that the marginal propensity