Assume that you just won $1 million in the lottery. Ignoring taxes, how much of the...
- Assume that you just won $1 million in the lottery. Ignoring taxes, how much of the $1million would you spend and how much would you save? Calculate your own MPC and MPS based on your answers.
- Assume everyone in this class gets a $1,000 at the end of the semester. Further assume each student consumes $750 of their bonus. Calculate the multiplier. If there are 30 students in the class, by how much will R-GDP increase?
Homework Answers
Out of $1 million lottery, I would spend $0.6 million and save $0.4 million
This means MPC = 0.6 and MPS = 0.4
----
Student MPC = Change in C / Change in Y = 750/1000 = 0.75
Multiplier = 1/(1-MPC) = 1/(1-0.75) = 4
Increase in RGDP of one student = 4 x $1000 = $12,000
Increase in RGDP of 30 students = 30 x $12000 = $360,000
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