Assume that MPS is equal to 0.15 and MPI is equal to 0.10, and there are...

Assume that MPS is equal to 0.15 and MPI is equal to 0.10, and there are no taxes. An initial change of $19,000 in government expenditure would result in a total change of _____ in income.

[Hints: In an economy that has no taxes, Multiplier = 1/(MPS + MPI) ]

$19,000

$16,150

$20,000

$76,000

$126,667

Expert Solution

MPC = 0.15

MPI = 0.10

Multiplier = 1/(MPS+MPI) = 1/(0.15+0.10)= 1/0.25 =4

Change in government spending = $19,000

Total change in income = (4)($19,000)= $ 76,000.

Hence,option(D) is correct.

Rahul Sunny answered 2 years ago

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