ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Assume Gerbilia’s marginal propensity to save (MPS) is 0.3By how much will household consumption increase as a result of an increase in disposable incomes of $2000?
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$600
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70%
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$2000
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$1400
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$700
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Explanation:
Detailed explanation-1: -If the marginal propensity to save is 0.3, the size of the multiplier is: 3.3. The multiplier is: 1 / (1-MPC).
Detailed explanation-2: -Since the consumption function will be C = 0.8 (GDP-T), the multiplier will be 1 / (1-MPC) or 1 / MPS = 1 / 0.2 = 5.
Detailed explanation-3: -HINT: Since the marginal propensity to save is 0.25, the multiplier is = 4, or (1/0.25).
Detailed explanation-4: -The Spending Multiplier can be calculated from the MPC or the MPS. Multiplier = 1/1-MPC or 1/MPS
There is 1 question to complete.