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swat32
2 years ago
5

Imagine a world where there are only two countries. In country A, the people spend 80% of their marginal income. In country B, t

he people spend 60% of their marginal income. In which country would fiscal policy be more effective and why
Business
1 answer:
Pavlova-9 [17]2 years ago
7 0

Based on the percentage spent out of their marginal income, the country where fiscal policy would be more effective is<u> Country A </u>

The country where fiscal policy would be more effective is the one that has a higher multiplier.

Multiplier is calculated as:

<em>= 1 / ( 1 - Marginal propensity to consume)</em>

Marginal propensity to consume is the percentage spent out of marginal income.

Country A multiplier:

= 1 / ( 1 - 80%)

= 5

Country B multiplier:

= 1 / ( 1 - 60%)

= 2.5

In conclusion, fiscal policies would be more effective in Country A.

<em>Find out more at brainly.com/question/17012705. </em>

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