ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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None of the above
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Detailed explanation-1: -The spending multiplier formula is calculated by dividing 1 by the MPS. It can also be calculated by dividing 1 by 1 minus MPC.
Detailed explanation-2: -In the above equation and explanation, if a person saves 65% of what they earn and they spend 35% of their earnings, then the marginal propensity to consume is 0.65. One the other hand, that person’s marginal propensity to save is 0.35. Using these figures, the spending multiplier would be 2.857.
Detailed explanation-3: -The multiplier effect refers to the theory that government spending intended to stimulate the economy causes increases in private spending that additionally stimulates the economy. In essence, the theory is that government spending gives households additional income, which leads to increased consumer spending.
Detailed explanation-4: -Determine the marginal propensity of consumption. Calculate the MPC to apply the multiplier formula. Subtract the MPC from one. Divide one by the difference. Evaluate the result. 29-Sept-2021