ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Spending multiplier = 5
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Tax multiplier = 5
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MPS = .8
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Spending multiplier = 10
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Detailed explanation-1: -Multiplier(k) = 1/( 1-0.8) = 1/ 0.2 = 10/2 = 5 times.
Detailed explanation-2: -9, multiplier = 10; MPC = . 67; multiplier = 3; MPC = . 5, multiplier = 2; MPC = 0, multiplier = 1.
Detailed explanation-3: -MPC is the money people spend when they get an extra dollar of income. When MPC = 0.8, for example, when people gets an extra dollar of income, they spend 80 cents of it. So the Keynesian multiplier works as follow, assuming for simplicity, MPC = 0.8.
Detailed explanation-4: -If the marginal propensity to consume (MPC) is 0.80, the value of the spending multiplier is: 5.
Detailed explanation-5: -When marginal propensity to consume is greater than marginal propensity to save, the value of investment multiplier will be greater than 5.