Question

Consider a hypothetical closed economy in which households spend $0.70 of each additional dollar they earn and save the remaining $0.30. the marginal propensity to consume (mpc) for this economy is , and the spending multiplier for this economy is .

Answer 1

Answer:

$0.70 and 3.3

Explanation:

Data provided in the question

Household spending for each additional dollar = $0.70

And, the remaining amount = $0.30

So in the given case,

The marginal propensity to consume (MPC) = household spending for each additional dollar i.e $0.70

And, the Spending multiplier is

= 1 ÷ 1 - MPC

= 1 ÷ 1 - $0.70

= 1 ÷ $0.30

= 3.3