2 The government purchases multiplier Example:MPC 0.8 1 △Y= 1-MPC AG 1 1 三 △G= △G =5△G 1-0.8 0.2 The increase in G causes income to increase by 5 times as much! CHAPTER 10 Aggregate Demand I slide 12CHAPTER 10 Aggregate Demand I slide 12 The government purchases multiplier Example: MPC = 0.8 1 1 MPC 1 1 5 1 0 8 0 2 . . Y G G G G  =  − =  =  =  − The increase in G causes income to increase by 5 times as much! 2