Suppose the marginal propensity to consume is 85% and the marginal propensity to import is 15%....
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Suppose the marginal propensity to consume is 85% and the marginal propensity to import is 15%. The economy is in a recession. Real GDP is $10.5 trillion, and at full employment real GDP would be $11.3 trillion. Congress and the president decide to increase government spending in an effort to push real GDP to potential GDP. How much should government spending be increased by? What happens to the expenditure multiplier if MPS increases from 5% to 10% (assume MPM-0). Which MPS gives the government greater power to influence GDP? Which MPS creates a less volatile economy (i.e. which MPS causes smaller fluctuations in real GDP)? Suppose the marginal propensity to consume is 85% and the marginal propensity to import is 15%. The economy is in a recession. Real GDP is $10.5 trillion, and at full employment real GDP would be $11.3 trillion. Congress and the president decide to increase government spending in an effort to push real GDP to potential GDP. How much should government spending be increased by? What happens to the expenditure multiplier if MPS increases from 5% to 10% (assume MPM-0). Which MPS gives the government greater power to influence GDP? Which MPS creates a less volatile economy (i.e. which MPS causes smaller fluctuations in real GDP)?
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To calculate the amount by which government spending should be increased we can use the expenditure ... View the full answer
Related Book For
Macroeconomics
ISBN: 978-1319120054
3rd Canadian edition
Authors: Paul Krugman, Robin Wells, Iris Au, Jack Parkinson
Posted Date:
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