Suppose that investment expenditures increases by $300 billion in a closed and private economy (no government...
Suppose that investment expenditures increases by $300 billion in a closed and private economy (no government or foreign trade). Assume further that households have a marginal propensity to consume of 75 percent. What will be the final cumulative impact on spending?
$900 billion
$225 billion
$375 billion
$525 billion
Homework Answers
Investment expenditure increases by $300 billion in a closed and private economy and here no government and foreign trade. Household has marginal propensity to consume 75% i.e 0.75. The final and cumulative impact depend on spending multiplier. The spending multiplier is 1/1-MPC. The cumulative impact (1/1-MPC)* change in investment expenditure. Therefore 1/1-MPC = 1/1-0.75 = 1/0.25 = 4. The cumulative impact will be equal to 4*change in investment expenditure = 4*$300 = $1200.
None of the option is true. The final and cumulative impact will be $1200.
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Suppose that investment expenditures increases by $300 billion
in a closed and private economy (no government...
Suppose that investment demand increases by $200 billion and no leakages occur except household saving. Assume...
Suppose that investment demand increases by $200 billion and no leakages occur except household saving. Assume further that households have a marginal propensity to consume of 75 percent. Instructions: Enter your responses rounded to one decimal place. a. Compute four rounds of multiplier effects. Changes in This Cycle's Spending Cumulative Change in Spending (in billions) (in billions) First cycle $200.0 $200.0 Second cycle Third cycle Fourth cycle b. What will be the final cumulative impact on spending? billion
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In a closed economy, private saving is smaller than investment if government spending exceeds tax revenue....
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Suppose that Congress and the President are considering an increase in government expenditures of $50 billion....
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