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Irina-Kira [14]
3 years ago
10

In a simple economy in which prices are constant and with no income taxes or imports, the marginal propensity to consume is 0.8.

If investment increases by $50, what impact will that have on aggregate expenditure?
A) decrease by $100B) increase by $250C) increase by $100D) decrease by $250
Business
1 answer:
lutik1710 [3]3 years ago
5 0

Answer: Increase by $250

Explanation: As per the general rule of economics when there is an increase in income, that increase will eventually lead to increase in expenditure.

As, there is an increase in investment in the given case so it will result in increase in income for the economy.

We can compute it  as :-

change\:in\:income=\frac{change\:in\:investment}{1-MPC}

change\:in\:income=\frac{\$50}{1-0.8}

                                        = $250

Therefore, the expenditure would increase by $250

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For example, the first payment in  $200,000 at this moment,  so we add  $200,000.  

At the end of the first year we receive $30,000, and the rate of discount is 8%

The formula of discount is P=A/ (1+r)ⁿ

A=Final amount  

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r= interest rate

n= time

Year 1 = A/ (1+r)ⁿ =$30,000/1,08¹= 27777,77

Year 2 =$30,000/1,08²= 25720,16

Year 3=23814,96

Year 4=22050,89

Year 5=20417,49

Year 6=18905,08

Year 7=17504,71

Year 8=16208,06

Year 9=15007,46

Year 10=13895,80

 

Total  401302,44

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