Principles of Economics - Mindtap Access
7th Edition
ISBN: 9781285852454
Author: Mankiw
Publisher: CENGAGE L
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Question
Chapter 34, Problem 7PA
Subpart (a):
To determine
Marginal propensity to consume.
Subpart (b):
To determine
Marginal propensity to consume.
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Suppose economists observe that an increase in government spending of $10 billion raises the total demand for goods and services by $30 billion.
a. If these economists ignore the possibility of crowding out, what would they estimate the marginal propensity to consume (MPC) to be?
b. Now suppose the economists allow for crowding out. Would their new estimate
of the MPC be larger or smaller than their initial one?
Suppose economists observe that an increase in government spending of $10 billion raises the total demand for goods and services by $30 billion.a. If these economists ignore the possibility of crowding out, what would they estimate the marginal propensity to consume (MPC) to be?
b. Now suppose the economists allow for crowding out. Would their new estimate of the MPC be larger or smaller than their initial one?
I dont understand question b. Hope you can help me explain it elaborately. Thank you!
Suppose economists observe that an increase in government spending of $14 billion raises the total demand for goods and services by $42 billion.
If these economists ignore the possibility of crowding out, they would estimate the marginal propensity to consume (MPC) to be .
Now suppose the economists allow for crowding out.
Their new estimate of the MPC would be than their initial one.
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Principles of Economics - Mindtap Access
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