The marginal propensity to consume is 0.7. How would an initial spending of $1200 affect the...

Question

Question

The marginal propensity to consume is 0.7. How would an initial spending of $1200 affect the GDP? Bonus: Include a correctly

Answer 1

Answer #1

Marginal propensity to consume (MPC) = 0.7

Marginal propensity to save (MPS) = 1 – MPC = 1 – 0.7 = 0.3

Initial spending = $1,200

GDP will be increased to = Initial spending × (1 / MPS)

= $1,200 × (1 / 0.3)

= 1,200 / 0.3

= $4,000

Answer: GDP will be increased to $4,000.

Graph: Price level AD2 AD1 МPСC Él P2 E P1 $1,200 $4,000 GDP Once there is spending of $1,200, it constitutes equilibrium wit

Answer 2

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