The formula for economic impact is I(r)=(A)/1-rThe formula for impact change is ∆I= I'(r)*∆rThe formula for percentage change is g(r)=(r)/1-r 14. Explain the statement that for small spending rates (r < 1/2), the percentage change in the spendingrate is greater than the percentage change in the economic impact, while for large spending rates(r > 1/2), the percentage change in the spending rate is less than the percentage change in theeconomic impact. Suppose that one day your rich aunt unexpectedly gives you $10,000 to use as you like, no strings attached.A fraction of that gift will be consumed (the marginal propensity to consume, MPC) or saved (the marginalpropensity to save, MPS). If you are like the "average American," you will save less than 5% of your$10,0002. The money you don't save is consumed and is spent on purchasing goods and services. So,whether you spend the increased income on food, entertainment, paying off loans, or a new bicycle, thatmoney goes back into the economy, where it generates revenue through taxes, and gets spent again. Thisis because an injection of extra income leads to more spending, which creates more income, and so on.In this way, your money is actually spent many times and it has the effect of stimulating the economythrough what is known as the multiplier effect. Gifts from rich aunts are not the only way to stimulatethe economy. Governments occasionally provide an economic stimulus by increasing their spending or byoffering tax rebates or refunds that have similar effects. Economic systems are incredibly complex anddifficult to model. In this project we look at a simplified explanation of how the multiplier effect leads toeconomic growth. (It is worth noting that some economists view the Keynesian economic principles uponwhich this project is based with deep suspicion; these economists believe government stimulus spendingdoes not work as advertised.)

14. Explain the statement that for small spending rates (r < 1/2), the percentage change in the spending rate is greater than the percentage change in the economic impact, while for large spending rates (r > 1/2), the percentage change in the spending rate is less than the percentage change in the economic impact.

14. Explain the statement that for small spending rates (r < 1/2), the percentage change in the spending rate is greater than the percentage change in the economic impact, while for large spending rates (r > 1/2), the percentage change in the spending rate is less than the percentage change in the economic impact.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter10: Keynesian Macroeconomics And Economic Instability: A Critique Of The Self Regulating Economy

Section: Chapter Questions

Problem 8QP

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