Suppose that there is an autonomous increase in investment spending of $20 billion and the MPC is given as 0.4, and assuming taxes, imports, and savings are all equal and there are no leakages: How large is the spending multiplier? Use the simple multiplier equation to calculate it. How much is the total change in GDP from this autonomous increase in investment spending? Do you think a larger or smaller MPC would help the economy, and why? What could be some concerns about the Keynesian spending multiplier?
Suppose that there is an autonomous increase in investment spending of $20 billion and the MPC is given as 0.4, and assuming taxes, imports, and savings are all equal and there are no leakages: How large is the spending multiplier? Use the simple multiplier equation to calculate it. How much is the total change in GDP from this autonomous increase in investment spending? Do you think a larger or smaller MPC would help the economy, and why? What could be some concerns about the Keynesian spending multiplier?
Chapter19: The Keynesian Model In Action
Section: Chapter Questions
Problem 7SQP
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Suppose that there is an autonomous increase in investment spending of $20 billion and the MPC is given as 0.4, and assuming taxes, imports, and savings are all equal and there are no leakages:
- How large is the spending multiplier? Use the simple multiplier equation to calculate it.
- How much is the total change in
GDP from this autonomous increase in investment spending? - Do you think a larger or smaller MPC would help the economy, and why? What could be some concerns about the Keynesian spending multiplier?
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