An economy has a marginal propensity to consume of 0.5, and Y*, incomeexpenditure equilibrium GDP, equals $500
Question:
a. What is the total change in real GDP after the 10 rounds? What is the value of the multiplier? What would you expect the total change in Y* to be based on the multiplier formula? How do your answers to the first and third questions compare?
b. Redo the table starting from round 2, assuming the marginal propensity to consume is 0.75. What is the total change in real GDP after 10 rounds? What is the value of the multiplier? As the marginal propensity to consume increases, what happens to the value of the multiplier?
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Related Book For
Macroeconomics
ISBN: 978-1319120054
3rd Canadian edition
Authors: Paul Krugman, Robin Wells, Iris Au, Jack Parkinson
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