If the marginal propensity to consume is 0.75, the multiplier for government purchases of goods and services will be:Choose one answer from the options below.0.751.3347.5
Question
If the marginal propensity to consume is 0.75, the multiplier for government purchases of goods and services will be:Choose one answer from the options below.0.751.3347.5
Solution
The multiplier for government purchases of goods and services can be calculated using the formula:
Multiplier = 1 / (1 - Marginal Propensity to Consume)
Given that the Marginal Propensity to Consume (MPC) is 0.75, we can substitute this value into the formula:
Multiplier = 1 / (1 - 0.75)
This simplifies to:
Multiplier = 1 / 0.25
So, the multiplier for government purchases of goods and services is 4. Therefore, none of the options provided (0.75, 1.33, 47.5) are correct.
Similar Questions
If the marginal propensity to save is 0.35. What is the size of the expenditure multiplier?Provide answer to one decimal point.
Suppose we know the multiplier of a country is 4. Assume that only consumption and investment spendings depend on the output level, the amount of taxation is exogenous, and the investment behaviour equation is known to be I = 2,000 + 0.1 Y. The marginal propensity to consume in this country is then __ Group of answer choices0.750.5uncertain from the information given0.65
Suppose that a simple economy has a multiplier of 2. The investment function is I=40.What is the marginal propensity to consume?
Select Any One Of the Following Options: With the Consumption function: C=200+ 0.75(Y-T) and each of G, I and T being 100 what is the value of the Government purchase Multiplier?2314
If Government (or Investment) spending is increased by $10 with MPC = 0.75 , then the multiplier will be _________. (Assume that no other component in AD depends on income, just the consumption function.)
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.