ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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MPC = .25
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MPS = .25
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MPC = .75
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MPS = .75
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Detailed explanation-1: -It is calculated by simply dividing the change in savings by the change in income.
Detailed explanation-2: -How Do You Calculate Marginal Propensity to Consume? To calculate the marginal propensity to consume, the change in consumption is divided by the change in income. For instance, if a person’s spending increases 90% more for each new dollar of earnings, it would be expressed as 0.9/1 = 0.9.
Detailed explanation-3: -If the MPC is 0.75, the Keynesian government spending multiplier will be 4/3; that is, an increase of $ 300 billion in government spending will lead to an increase in GDP of $ 400 billion. The multiplier is 1 / (1-MPC) = 1 / MPS = 1 /0.25 = 4.
Detailed explanation-4: -The Spending Multiplier can be calculated from the MPC or the MPS. Multiplier = 1/1-MPC or 1/MPS