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Phoenix [80]
3 years ago
6

Consider a hypothetical closed economy in which households spend $0.60 of each additional dollar they earn and save the remainin

g $0.40. The marginal propensity to consume (MPC) for this economy is0.6 , and the spending multiplier for this economy is . Suppose the government in this economy decides to increase government purchases by $400 billion. The increase in government purchases will lead to an increase in income, generating an initial change in consumption equal to . This increases income yet again, causing a second change in consumption equal to . The total change in demand resulting from the initial change in government spending is .
Business
1 answer:
Anon25 [30]3 years ago
5 0

Answer:

The total change in demand resulting from the initial change in government spending is $1,000 billion

Explanation:

Marginal propensity to consume (MPC) = As with every additional increase in income, consumption increases by 0.60.

MPC = change in Consumption / Change in Income = \Delta C/\Delta Y

\Delta C/\Delta Y = 0.60 / 1

MPC = 0.60.

Spending or Expenditure Multiplier = 1 ÷ (1 - MPC)

Spending Multiplier = 1 ÷ (1 - 0.6) = 1 ÷ 0.4 = 2.5.

The consumption will increase by MPC, with 1 dollar increased, consumption increased by 0.60

Therefore, with $400 billion increase, Consumption will increase by 0.60 × 400 billion = $240 billion.

This increases income, causing a change in consumption at second times equal $240 billion × 0.6 = $144 billion.

The total change in income by this increment in government spending equals as:

Change in Demand = Multiplier × change in G

Change in Demand= $400 billion × 2.5 = $1,000 billion.

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If the discount rate is 21% and the steady growth rate after 3 years is 2%, what should the stock price be today
jonny [76]

<u>Complete Question:</u>

Tattletale News Corp. has been growing at a rate of 20% per year, and you expect this growth rate in earnings and dividends to continue for another 3 years.

a. If the last dividend paid was $10, what will the next dividend be? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Dividend  $

b. If the discount rate is 21% and the steady growth rate after 3 years is 2%, what should the stock price be today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Stock price  $

Answer:

Requirement A. $12 per share

Requirement B. $44.14 per share

Explanation:

Requirement A.

The next dividend can be calculated using the following equation:

Next Dividend = D0 * (1 + g)

Here

D0 is the current dividend which is $10 and g is the Growth Rate which is 20% for the first three years

By putting values, we have:

Next Dividend = $10 * (1 + 20%)

= $12 per share

Requirement B.

Year  Dividend  Growth Rate  New Dividend

1               10                      20%           12

2               12                      20%                 14.40

3                 14.4                     20%         17.28

4            17.28                    2%                   17.63

Stock Price = $17.63 * (1 + 2%) / (21% - 2%) = $94.62

The above stock price calculated is the value of stock at the end of year 4. To discount it back to year zero, we will discount it by 21%.

Stock price at year0 = $94.62 / (1 + 21%)^4 = $44.14 per share

6 0
3 years ago
Under the market system, ______ coordinate the decisions made by households and businesses.
MakcuM [25]

Under the market system, prices coordinate the decisions made by households and businesses.

<h3>What is a market system?</h3>

It should be noted that a market system simply means an economy whereby the individual makes choices in the market and decisions.

In this case, under the market system, prices coordinate the decisions made by households and businesses.

Learn more about market system on:

brainly.com/question/1659498

#SPJ1

7 0
2 years ago
The population of ectenia is 100 people: 40 work full-time, 20 work half-time but would prefer to work full-time, 10 are looking
Marina CMI [18]
60 Becuase only 60 are working.
7 0
3 years ago
The Quick Buck Company is an all-equity firm that has been in existence for the past three years. Company management expects tha
Vika [28.1K]

Answer and Explanation:

a. The computation of the current price per share is shown below:

Current price per share = Value of Firm  ÷ Number of stock outstanding

where,

Value of Firm is

= $800,000 ÷ 1.13 + $1,250,000  ÷ 1.13^2

= $1,686,897.96

And, the number of outstanding shares is 35,000 shares

So, the current share price is

= $1,686,897.96 ÷ 35,000 shares  

= $48.20

c. The computation of the shares of stock sold is shown below:

No of shares of stock must be sold is

= ($910,000 - $800,000) ÷ 48.20

= $2,282.16

c. The computation of the new price per share of stock is shown below:

Current price per share = Value of Firm  ÷ Number of stock outstanding

where,

Value of Firm is

= $910,000 ÷ 1.13 +  $1,250,000 ÷ 1.13^2

= $1,784,243.09

And, the number of outstanding shares is 35,000 shares and $2,282.16

So, the current share price is

= $1,784,243.09  ÷ 35,000 shares  + $2,282.16

= $47.86    

5 0
3 years ago
McDonald's is an excellent example of a firm that simultaneously employs both a product-differentiation and a cost-leadership st
julia-pushkina [17]

Answer:

The correct answer is True.

Explanation:

Product differentiation is a competitive strategy that aims to make the consumer perceive the good or service offered by a company differently from those of the competition.

The cost leadership strategy is to find and maintain a low cost position compared to the competition, this will allow the company to obtain higher returns than the industry average.

There is a relationship between the cost leadership strategy and the possession of a high market share, this is because having a high market share allows the appearance of economies of scale and economies of experience, both contribute to reducing unit costs.

7 0
3 years ago
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