Question

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

MPC	Spending Multiplier	Change in Government Spending	Change in Income
	10	100
	2.5		-500
0.5		225
0.2			100

Answer 1

MPC	Spending Multiplier= (1/1-MPC)	Change in government spending= (Change in income/Spending multiplier)	Change in income = (Multiplier)(Change in government spending)
0.9	10	100	1000
0.6	2.5	-200	-500
0.5	2	225	450
0.2	1.25	80	100

Spending multiplier = 1/1-MPC

10 = 1/1-MPC

MPC = 1-0.1

MPC = 0.9