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eduard
3 years ago
10

Calculate the values for each of the questions. Assume that in each country there are no taxes, international trade, or inflatio

n and that interest rates are fixed. The Italian government decides to stimulate the economy by sending checks worth $ 70 billion to Italian consumers. If the government spending multiplier is 1.5 , calculate the MPC to determine the final change in Italy's real GDP due to the transfer. Please give your answer as a whole number in billions of dollars. $ billion The Greek government decides to introduce new austerity measures, which reduce government direct spending by $ 16 billion. Greece has a marginal propensity to consume of 0.6 . What will be the final change in real GDP as a result of this decreased spending? Please give your answer as a whole number in billions of dollars. $ billion The Japanese government decides to stimulate the economy by increasing direct spending by $ 70 billion. If the final change in real GDP is $ 280 billion, what is Japanese consumers' marginal propensity to consume (MPC)? Please round your answer to two decimal places.
Business
1 answer:
Inessa [10]3 years ago
3 0

Explanation:

a. The computation is shown below:

As we know that

Multiplier = 1 ÷ 1 - MPC

1.5  = 1 ÷ 1 - MPC

So, MPC is 0.3333

Now the real GDP is

= Multiplier × Government spending

= 0.3333 × $70 billion

= $105 million

So the change in real GDP is

= $105 million - $70 million

= $35 million

b. The computation is shown below:

As we know that

Multiplier = 1 ÷ 1 - MPC

Multiplier  = 1 ÷ 1 - 0.6

So, multiplier is 2.5

Now the real GDP is

= Multiplier × Government spending

= 2.5 × $16 billion

= -$40 million

c. As we know that

Real GDP = Multiplier × Government spending

$280 billion = Multiplier × $70 billion

So, the multiplier is 4

Now the MPC is

Multiplier = 1 ÷ 1 - MPC

4 = 1 ÷ 1 - MPC

So, the multiplier is 0.75

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