Question

The following table shows alternative hypothetical economies and the relevant values for the marginal propensity to consume out of disposable income (MPC), the net tax rate (t), and the marginal propensity to import (m). a. Recall that z, the marginal propensity to spend out of national income, is given by the simple expression Z-MPC(1-1)-m. By using this expression, compute z and the simple multiplier for each of the economies and fill in the table. (Round your response to two decimal places in computing the simple multiplier, use the rounded values of z obtained in column "2") Economy MPC 1 m 2 = MPC(1 – t) - m Simple Multiplier = (1-2) A B C 0.75 0.75 0.75 0.80 0.20 0.20 0.30 0.30 0.15 0.30 0.30 0.30 of an impact on equilibrium GDP. b. Compare Economies A and B (they differ only by the value m). When a country has a higlar marginal propensity to import any change in autonomous spending will have This is reflected in the table, since as m increases, the multiplier

Answer 1

b) smaller & decreases c) smaller, decreases » d bigger , increases

- Economy mpc t m 0.75 0.20 0.15 0.75 0.20 0.30 0.75 0.30 0.30 0.80 0 30 0 30 z-MPC (1-x)-m. 0.45 0. 30 0.225 multiples = /1-2 10.55 1.81 10.30 = 1.42 10.775 = 1.29 10.74 1.35 B 0.26