EBK ECON: MACRO4
4th Edition
ISBN: 9781305562097
Author: MCEACHERN
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Question
Chapter 9, Problem 5.10PA
To determine
The increase in the government expenditure required to increase the real
Concept Introduction:
Marginal Propensity to Consume (MPC) - It refers to the fraction of the disposable income which is spent as induced consumption or personal consumption spending consequent upon an increase in the personal income of the consumers.
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Students have asked these similar questions
4. (a) If an initial increase in investment of $3 billion results in a $4.5 billion increase in equilibrium real output, what is the size of the spending multiplier?
(b) Calculate the MPW for this example.
(Use for a and b)Suppose the interest on the debt was $700 billion. If interest is paid domestically, 90% will be spent domestically (the remainder is spent on foreign goods). If interest is paid to the foreign sector, only 10% is spent here (the remainder is spent in foreign countries). Every dollar collected in taxes to pay the interest causes domestic spending to fall 90 cents. The spending multiplier is 2.
a) What is the net impact on GDP if all interest is paid domestically?
b) What is the net impact on GDP if 20% of the interest is paid to the foreign sector?
c)What are the desirable qualities of an efficient commodity money?
(simple spending multiplier) for each of the following values for the MPC. Determine the size of the simple spending multiplier and the change in real GDP demanded following a $10 billion decrease in spending:
a. MPC = 0.9
b. MPC = 0.75
c MPC = 0.6
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