The GDP of the destination country will change by \$187.50 in total. This is calculated by first multiplying the French tourist’s expenditure of \$250 by the marginal propensity to consume (MPC) of 0.75. This gives a total of \$187.50. This is the first step in calculating the change in GDP.

## Calculating MPC

The marginal propensity to consume (MPC) is a measure of the proportion of an additional unit of income that will be consumed. MPC is calculated by dividing the change in consumption by the change in income. In this case, the MPC is 0.75, which means that for every additional unit of income, 75% of it will be consumed.

## Calculating GDP Change

The GDP of a country is the total value of all the goods and services produced in that country, and is calculated by multiplying the amount of money spent by the MPC. In this case, the French tourist’s expenditure of \$250 is multiplied by the MPC of 0.75, resulting in a total of \$187.50. This is the first step in calculating the change in GDP.

## Marginal Rate of Income Taxation

The marginal rate of income taxation is the rate at which an additional dollar of income is taxed. In this case, the marginal rate of income taxation is 0.2. This means that any additional dollar of income is taxed at a rate of 20%.

## Calculating Final GDP Change

The final GDP change can be calculated by subtracting the amount of money taxed from the total amount of income. In this case, the total amount of income is \$187.50, and the amount of money taxed is 0.2 x \$187.50 = \$37.50. Therefore, the final GDP change is \$187.50 – \$37.50 = \$150.

## Related Questions

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