BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

Solutions

Chapter
Section
BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

With the economy in a recession because of inadequate aggregate demand, the government increases its purchases by $1,200. Suppose the central bank adjusts the money supply to hold the interest rate constant, investment spending is fixed, and the marginal propensity to consume is 2 3 . How large is the increase in aggregate demand?

a. $400

b. $800

c. $1,800

d. $3,600

To determine

Multiplier effect.

Explanation

Option (d):

When the marginal propensity to consume is 23 , the multiplier is calculated as follows:

Multiplier=11MPC=1123=332=3

The government spending multiplier is 3

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

What are the different forms of compensation?

Foundations of Business (MindTap Course List)

WACC The Patrick Companys year-end balance sheet is shown below. Its cost of common equity is 16%, its before-t...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)