Consider a hypothetical economy where there are no taxes and no international trade. households spend $0.80 of each additional d

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2 years ago

9

Consider a hypothetical economy where there are no taxes and no international trade. households spend $0.80 of each additional d

ollar they earn and save the remaining $0.20. if there are no taxes and no international trade, the oversimplified multiplier for this economy is .

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1 answer:

KengaRu [80] · Answer 1 · 2022-08-13T22:46:58+03:00

KengaRu [80]2 years ago

7 0

The formula for the multiplier is 1 / (1 - MPC), whereby MPC represents the marginal propensity to consume. Applying the formula to our case, we get: M (multiplier) = 1/(1-0.8) = 1/0.2 = 5. The multiplier in this economy is therefore 5.