Question

3. Fill in the blanks in the table below. Assume that MPC is constant for everyone in the economy.

MPC	Spending Multiplier	Change in government spending	Change in income
	100	$15
	20		$2,000
0.6		-$400
0.5		$450	$900

Answer 1

The formulas used are

Spending Multiplier = K = 1/(1-MPC)

also MPC =Change in Spending/Change in Income

Change in Spending = Change in income*MPC

Change in Income = Change in Spending/MPC

MPC	Spending Multiplier	Change in government spending	Change in income
0.99	100.0	$15.0	$15.15
0.95	20.0	$1,900.0	$2,000
0.60	2.5	($400.0)	($666.7)
0.50	2.0	$450.0	$900.0