Question

In: Economics

If MPS is 20% and a person experiences an increase in disposable income for $200. How...

If MPS is 20% and a person experiences an increase in disposable income for $200. How much is being saved? How much is being spent? What is the MPC?

MPS=.4. What the government spending multiplier?
MPC=.9. What the government spending multiplier?
MPS=.5. What the government spending multiplier?
MPC=.75. What the tax multiplier?
MPS=.1. What the tax multiplier?

Expert Solution

If the MPS is 20% the MPS should be 80%. The sum of marginal propensity to consume and the marginal propensity to save equals 1. So if the marginal propensity to save is . 2 the marginal propensity to consume should be .8. Here the person will save $40 and consumes $160.

a. Government spending multiplier is

.

b. Government spending multiplier

.

c. Government spending multiplier

.

d. Tax multiplier

.

e. Tax multiplier

.

Rahul Sunny answered 2 years ago

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