Question

The Government increases government spending by $1 billion on goods and services, $3 billion on increased subsidies of pre-school children and increases taxes by $2.5 billion. What is the net effect of these changes if the marginal propensity to withdraw is 20 percent? (repeat the exercise if the MPW is 60%). Had the government wanted to get the same impact through buying goods and services, what would it have to increase the spending on goods and services. Show your work and your answer. In a paragraph or two what other impacts (positive or negative) might this decision have on the economy?

Answer 1

The net effect of these changes in the expenditure if the marginal propensity to withdraw is 20 percent is that the consumer spending will rice.

How to illustrate the information?

In Keynesian macroeconomic hypothesis, it illustrates the impact of the monetary improvement spending.

If the government wanted to get the same impact through buying goods and services, the thing to do to increase the spending on goods and service is to reduce taxes and increase its expenditure.

The impacts that this might this decision have on the economy is that it will enhance globalization and and increase in the standard of living.

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