The multiplier process depicted in the following table is based on an MPC of 0.75. a. Recompute the first four cycles using an MPC of 0.95. MPC = 0.75 MPC = 0.95 Spending Cycles Change in Spending Cumulative Increase Change in Spending Cumulative Increase during Cycle in Spending during Cycle in Spending (billions per year) (billions per year) (billions per year) (billions per year) 1 $100.00 $100.00 $100.00 2 75.00 175.00 3 56.25 231.25 4 42.18 273.44 b. Given that the MPC is higher, how much more consumption occurs in the first four cycles when the MPC = 0.95 as compared to when the MPC = 0.75? billion c. What is the value of the multiplier (1) if the MPC = 0.75? (ii) if the MPC = 0.95?
The multiplier process depicted in the following table is based on an MPC of 0.75. a. Recompute the first four cycles using an MPC of 0.95. MPC = 0.75 MPC = 0.95 Spending Cycles Change in Spending Cumulative Increase Change in Spending Cumulative Increase during Cycle in Spending during Cycle in Spending (billions per year) (billions per year) (billions per year) (billions per year) 1 $100.00 $100.00 $100.00 2 75.00 175.00 3 56.25 231.25 4 42.18 273.44 b. Given that the MPC is higher, how much more consumption occurs in the first four cycles when the MPC = 0.95 as compared to when the MPC = 0.75? billion c. What is the value of the multiplier (1) if the MPC = 0.75? (ii) if the MPC = 0.95?
Chapter9: Aggregate Demand
Section: Chapter Questions
Problem 5.10P
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