Question

As the marginal propensity to consume (MPC) increases, the multiplier remains the same. increases. decreases. As the marginal propensity to save (MPS) increases, the multiplier decreases. increases. remains the same. If the marginal propensity to consume is 0.30, what is the multiplier, assuming there are no taxes or imports? Round to the tenths place. Given the multiplier that you calculated, by how much will gross domestic product (GDP) increase when there is a $1,000 increase in government spending? $

Answer 1

Answer:

multiplier: 1.42857

increase in the GDP when government spending increase by 1,000: 1,428.57

1

Explanation:

the multiplier if we assume no taxes or imports:

$\frac{1}{1-MPC}$

$\frac{1}{1-0.3C}$

multiplier = 1.4285714285714

Now we apply this to the goverment spending to know the effect

1.4285714285714 x 1,000 = 1,428.571228 rounding to: 1,428.57