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Norma-Jean [14]
3 years ago
7

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
Business
1 answer:
BaLLatris [955]3 years ago
3 0

Answer:

The answer is:

For italy: $35 billion

For Greece: -$40 billion

Explanation:

Injection into the economy = $70 billion.

Government spending multiplier is 1.5.

MPC = $70billion x 1.5

=$105 billion.

Change in Italy's real GDP due to the transfer = $105 billion - $70 billion

= $35 billion.

Greek Government.

Multiplier effect = 1 ÷ (1-MPC)

1 ÷ (1-0.6)

1÷ 0.4

-2.5.

It is negative because it is a reduction in government spending.

Therefore, the final change in real GDP as a result of this decreased spending is

-2.5 x $16 billion

= -$40 billion

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