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GaryK [48]
3 years ago
13

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.
Business
1 answer:
andre [41]3 years ago
4 0

Answer:

  • MPC = 0.33
  • Change in GDP = $35 billion

Explanation:

The new real GDP after the spending is;

= Cash injected * Multiplier

= 70 * 1.5

= $105 billion

Change in Italy real GDP

= 105 - 70

= $35 billion

The Marginal Propensity to Consume (MPC) can be calculated by;

Multiplier = 1 / ( 1 - MPC)

1.5 = 1 / ( 1 - MPC)

1 - MPC = 1/1.5

MPC = 1 - 1 / 1.5

MPC = 0.33

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