Homework Answers
Q7.Change in real GDP required = spending multiplier x change in government spending(DG)
(DG)= 1/(1 - 0.80) x ($1,250 - $1,000). DG*5=$250.
DG= $50 billion.
Hence, The target can be reached if given spending is INCREASED BY $50 billion.
Q8. False.
As, spending multiplier = 1/(1-MPC)
Whereas, tax multiplier = -MPC/(1-MPC)
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please show solutions also. Thanks Question 4 In a simple Keynesian model, assume that the marginal...
please show solutions also. Thanks
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please show solutions also. Thanks
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Suppose economists observe that an increase in government spending of $5 billion raises the real aggregate output level by $20 billion. (a) In the absence of the crowding out effect, what would the numerical value of marginal 1. propensity to consume (MPC)? (b) Now suppose the crowding-out effect also comes to play.Should the new numerical value of marginal propensity to consume (MPC) be larger or smaller than that of your answer in part (a)? Explain. (Hint: the multiplier effect and...
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