Question

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

MPC	Spending Multiplier	Change in government spending	Change in income
	100	$15
	20		$2,000
0.6		-$400
0.5		$450	$900

Answer 1

Answer

MPC=1-MPS
MPS=1/spending multiplier

Working as per colum

MPS=1/100=0.01
MPC=1-.01=0.99

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MPS=1/20=0.05
MPC=1-0.05=0.95

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Spending multiplier=1/(1-MPC)
MPC=0.6
Spending multiplier =1/(1-0.6)=2.5
MPC=0.5
Spending multiplier =1/(1-0.5)=2
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Change in govenment spending =change in income /spending multiplier

Change in govenment spending =2000/20=$10
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Change in income =change in govenment spending *multiplier
change innincome for first balnk =15*100=1500
change inn income for second blank =-400*2.5=-$1000