Suppose consumers' disposable income increased by $341 billion and their spending increased by $299 billion. What...

Suppose consumers' disposable income increased by $341 billion and their spending increased by $299 billion. What was the MPC?

Suppose the government increases education spending by $30 billion. If the marginal propensity to consume is 0.90, how much will total spending increase?

Expert Solution

Solution:-

(a). Calculate MPC:-

MPC = Change in consumption / Change in Disposable income

= $299 / $341

= 0.88

(b). Calculate Total Spending:-

Government spending multiplier = 1 / (1 - MPC)

= 1 / (1 - 0.9)

= 1 / 0.1

= 10

Therefore, total spending would increase by = multiplier x education spending

= 10 x $30 billion

= $300 billion.

Rahul Sunny answered 1 week ago

Disposable National income 2000 = $4.5 billion Consumption = $4.0 billion Disposable National income 2007 =...

Disposable National income 2000 = $4.5 billion Consumption = $4.0 billion Disposable National income 2007 = $5.5 billion Consumption = 4.8 billion Given the data above, what is this country’s marginal propensity to consume (MPC)? What is the country’s marginal propensity to save (MPS)? Fred works as an accountant and earns a paycheck of $1000 every week, but $300 are taken out in taxes. Fred’s consumption spending is normally $500. What is Fred’s personal disposable income? Now assume the Federal...

Disposable Income Consumption 0 $200 billion $200 billion 300 billion 400 billion 400 billion 600 billion...

Disposable Income Consumption 0 $200 billion $200 billion 300 billion 400 billion 400 billion 600 billion 500 billion 800 billion 600 billion How much is the marginal propensity to consume when disposable income rises from $600 billion to $800 billion? Select one: a. 0.65 b. 0.5 c. 0.75 d. 0.85

Suppose C = 500 + 0.75 Yd where Yd is Disposable Income and Disposable Income is...

Suppose C = 500 + 0.75 Yd where Yd is Disposable Income and Disposable Income is National Income minus Net Taxes. In this case, the government spending multiplier equals. Group of answer choices a) -4 (negative 4). b) 0.75 c) 4/3. d) 4 (positive 4).

For example: Question: If income changes by $40 billion for each $2.28 billion change in spending,...

For example: Question: If income changes by $40 billion for each $2.28 billion change in spending, h much will income change by? Answer: 91 (rounded down from the calculated value of $91.2 billion) [Not acceptable would be: 91.2, nor $91, nor $91.2, et al.] For the following five questions, assume the following characteristics of the monetary transmission mechanism: The money multiplier is 2.33 Interest rates will change by 2.25% for every $75 billion change in the money supply. Investment will...

1 What is the main variable that influences consumer spending? If income rises by $100 billion,...

1 What is the main variable that influences consumer spending? If income rises by $100 billion, causing consumption to increase by $85 billion, calculate the MPC (or marginal propensity to consume). 2 Besides an increase in income, what are two more major factors that could cause consumer spending to increase? 3 What are two major factors that could cause investment spending to increase? 4 What are two factors that could lead to an increase in the trade deficit? (Note that...

Consumer spending is linked to disposable income. In 2011 and 2012, President Obama lowered the payroll...

Consumer spending is linked to disposable income. In 2011 and 2012, President Obama lowered the payroll taxes paid by workers from 6.2% to 4.2%. Explain how this change in taxes affected consumption and aggregate demand.

Suppose that money demand depends not on just income – Y – but on disposable income,...

Suppose that money demand depends not on just income – Y – but on disposable income, denoted as Y-T (and so income minus taxes). For example, the LM equation would become: M/P = 100 + (1/4)*(Y-T) – 10r The IS equation is the same as usual. a) If there is a change in taxes, which curve or curves will now shift? b) What happens now to output and interest rates when the government lowers taxes

Describe how Disposable income affect the consumption or consumer spending? Draw the circular flow diagram to...

Describe how Disposable income affect the consumption or consumer spending? Draw the circular flow diagram to explain the connection?

In India, increase in disposable income has increased the frequency of dining out. Big fast food...

In India, increase in disposable income has increased the frequency of dining out. Big fast food chains like McDonald’s came to India in 1996, and soon other big outlets like Dominos, Pizza Hut, KFC, etc, followed suit, according to a study by AIIMS, Bangalore. According to another report, Indian fast food market is expected to grow at a compound annual growth rate (CAGR) of 18 per cent by 2020 due to changing consumer behaviour and demography.New brands are attracted to...

Government spending in Robok is $200 billion, and its only tax is an income tax with...

Government spending in Robok is $200 billion, and its only tax is an income tax with a marginal tax rate of 0.4. a. The balance on the government’s budget at a GDP level of $380 billion is a (Click to select) deficit surplus of $ billion. b. The balance on the government’s budget at a GDP level of $580 billion is a (Click to select) deficit surplus of $ billion. c. At what level of GDP will the economy of Robok have a balanced budget? Robok will have a balanced...

Question