Given the economy's marginal propensity to consume = .8 (Ceteris paribus) by how much will national...
Given the economy's marginal propensity to consume = .8
(Ceteris paribus) by how much will national income increase when the government raises the level of transfer payments by $100?
$100.
$500.
$80.
$400.
Homework Answers
Ans: $500
Explanation:
Multiplier = 1 / ( 1 -MPC)
= 1 / ( 1 - 0.8 )
= 1 / 0.2
= 5
As government spending multiplier is 5 , the national income will increase by $500 when the government raises the level of transfer payments by $100.
Increase in national income = $100 * 5 = $500
Add Answer to:
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