1. What is the multiplier if the marginal propensity to consume (MPC) is 0.5? Calculate the marginal propensity to save (MPS)?

2. What is the multiplier if the MPS is 0.2? Calculate the MPC.

3. As a percentage of GDP, savings accounts for a larger share of the economy in the country of Scania compared to the country of Amerigo. Which country is likely to have the larger multiplier? Explain.

4. Assuming that the aggregate price level is constant, the interest rate is fixed, and there are no taxes and no foreign trade, what will be the change in GDP if the following events occur?

a. There is an autonomous increase in consumer spending of $25 billion; the marginal propensity to consume is 2/3.

b. Firms reduce investment spending by $40 billion; the marginal propensity to consume is 0.8.

c. The government increases its purchases of military equipment by $60 billion; the marginal propensity to consume is 0.6.

5. The Bureau of Economic Analysis reported that, in real terms, overall consumer spending increased by $66.2 billion during the second quarter of 2014.

a. If the marginal propensity to consume is 0.52, by how much will real GDP change in response?

b. If there are no other changes to autonomous spending other than the increase in consumer spending in part a, and unplanned inventory investment, Iunplanned decreased by $50 billion, what is the change in real GDP?

c. GDP at the end of the first quarter in 2014 was $16,014.10 billion. If GDP were to increase by the amount calculated in part b, what would be the percent increase in GDP?

Answer rating: 100% (QA)

Value of multiplier 11MPC 1105 105 2 MPS 1 MPC 1 05 05 2 Value of multiplier 11MPC OR 1 MPS 102 5 MP... View the full answer