Assume the economy is closed and there is no government. The aggregate demand componentsare described below:C = 100 + 0.6YI = 200What is value of the multiplier?
Question
Assume the economy is closed and there is no government. The aggregate demand componentsare described below:C = 100 + 0.6YI = 200What is value of the multiplier?
Solution 1
The multiplier in an economy is calculated using the formula 1/(1-MPC), where MPC is the marginal propensity to consume.
In this case, the MPC is given as 0.6 (from the consumption function C = 100 + 0.6Y).
So, the multiplier would be 1/(1-0.6) = 1/0.4 = 2.5.
Therefore, the value of the multiplier in this closed economy with no government is 2.5.
Solution 2
The multiplier in an economy is calculated using the formula 1/(1-MPC), where MPC is the marginal propensity to consume.
In this case, the MPC is given as 0.6 (from the consumption function C = 100 + 0.6Y).
So, the multiplier would be 1/(1-0.6) = 1/0.4 = 2.5.
Therefore, the value of the multiplier in this closed economy with no government is 2.5.
Similar Questions
Assume the economy is closed and there is no government. The aggregate demand componentsare described below:C = 100 + 0.6YI = 200What is the income of equilibrium?
Assume the economy is closed and there is no government. The aggregate demand components are described below:C = 100 + 0:6Y (1)I = 200 (2)What is the mutiplier?
Assume the economy is closed and there is no government. The aggregate demand components are described below:C = 100 + 0.6Y (1)I = 200 (2)What is the consumption of equilibrium?
The government invests $1.2 trillion in infrastructure, restoring GDP from $10 trillion to its potential level of $12.5 trillion. What is the value of the government purchases multiplier? 1.2 2.08 2 2.5 0.48
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?
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.