Economics:
Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
Question
Chapter 10, Problem 4E
To determine

(a)

What is the spending multiplier, when MPC=0.90 and MPI=0.10

Expert Solution
Check Mark

Explanation of Solution

We have

  MPC=0.90

  MPI=0.10

Also, MPC+MPS=1

  MPS=1MPC

  MPS=10.90

  MPS=0.10

Thus, multiplier is calculated as

  Multiplier = 1MPS+MPI

  Multiplier = 10.10+0.10

  Multiplier = 10.20

  Multiplier = 102

  Multiplier = 5

Hence, the value of multiplier is 5

Economics Concept Introduction

Concept Introduction:

Multiplier is defined as the ratio of change in equilibrium income with the initial change in autonomous expenditure

  Multiplier = change in equilibrium income or real GDPChange in autonomous expenditure

Also, multiplier can be measured from the leakages

  Multiplier = 1Leakages

  Multiplier = 1MPS+MPI

Where MPS= Marginal Propensity to save

  MPI= Marginal Propensity to invest

To determine

(b)

What is the spending multiplier, when MPC=0.90 and MPI=0.20

Expert Solution
Check Mark

Explanation of Solution

We have

  MPC=0.90

  MPI=0.20

Also, MPC+MPS=1

  MPS=1MPC

  MPS=10.90

  MPS=0.10

Thus, multiplier is calculated as

  Multiplier = 1MPS+MPI

  Multiplier = 10.10+0.20

  Multiplier = 10.30

  Multiplier = 103

  Multiplier = 3.34

Hence, the value of multiplier is 3.34

Economics Concept Introduction

Concept Introduction:

Multiplier is defined as the ratio of change in equilibrium income with the initial change in autonomous expenditure

  Multiplier = change in equilibrium income or real GDPChange in autonomous expenditure

Also, multiplier can be measured from the leakages

  Multiplier = 1Leakages

  Multiplier = 1MPS+MPI

Where MPS= Marginal Propensity to save

  MPI= Marginal Propensity to invest

To determine

(c)

What is the spending multiplier, when MPC=0.80 and MPI=0.30

Expert Solution
Check Mark

Explanation of Solution

We have

  MPC=0.80

  MPI=0.30

Also, MPC+MPS=1

  MPS=1MPC

  MPS=10.80

  MPS=0.20

Thus, multiplier is calculated as

  Multiplier = 1MPS+MPI

  Multiplier = 10.20+0.30

  Multiplier = 10.50

  Multiplier = 105

  Multiplier = 2

Hence, the value of multiplier is 2

Economics Concept Introduction

Concept Introduction:

Multiplier is defined as the ratio of change in equilibrium income with the initial change in autonomous expenditure

  Multiplier = change in equilibrium income or real GDPChange in autonomous expenditure

Also, multiplier can be measured from the leakages

  Multiplier = 1Leakages

  Multiplier = 1MPS+MPI

Where MPS= Marginal Propensity to save

  MPI= Marginal Propensity to invest

To determine

(d)

What is the spending multiplier, when MPC=0.90 and MPI=0

Expert Solution
Check Mark

Explanation of Solution

We have

  MPC=0.90

  MPI=0.10

Also, MPC+MPS=1

  MPS=1MPC

  MPS=10.90

  MPS=0.10

Thus, multiplier is calculated as

  Multiplier = 1MPS+MPI

  Multiplier = 10.10+0

  Multiplier = 10.10

  Multiplier = 101

  Multiplier = 10

Hence, the value of multiplier is 10

Economics Concept Introduction

Concept Introduction:

Multiplier is defined as the ratio of change in equilibrium income with the initial change in autonomous expenditure

  Multiplier = change in equilibrium income or real GDPChange in autonomous expenditure

Also, multiplier can be measured from the leakages

  Multiplier = 1Leakages

  Multiplier = 1MPS+MPI

Where MPS= Marginal Propensity to save

  MPI= Marginal Propensity to invest

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