a) Suppose economists observe that an increase in government spending of 300 crore taka raises the total demand for goods and services to 400 crore taka. If these economists ignore the possibility of crowding out effect, calculate the marginal propensity to consume (MPC)? b) Now suppose economists allow for crowding out. Would their new estimate of the MPC be smaller or larger than your answer to part a, explain.
a) Suppose economists observe that an increase in government spending of 300 crore taka raises the total demand for goods and services to 400 crore taka. If these economists ignore the possibility of crowding out effect, calculate the marginal propensity to consume (MPC)? b) Now suppose economists allow for crowding out. Would their new estimate of the MPC be smaller or larger than your answer to part a, explain.
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand
Section: Chapter Questions
Problem 7PA
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3. a) Suppose economists observe that an increase in government spending of 300 crore taka raises the total demand for goods and services to 400 crore taka. If these economists ignore the possibility of crowding out effect, calculate the marginal propensity to consume (MPC)?
b) Now suppose economists allow for crowding out. Would their new estimate of the MPC be smaller or larger
than your answer to part a, explain.
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