Assume a simple model without any government or net exports. If a decrease in autonomous investment by 40 leads to a fin...
Assume a simple model without any government or net exports. If a decrease in autonomous investment by 40 leads to a final decrease in GDP by 160, then the marginal propensity to save is _________. Show your calculations.
Homework Answers
Answer
Multiplier =change in GDP/change in investment
=-160/(-40)
=4
Multiplier =1/MPS
MPS=1/multiplier =1/4=0.25
the MPS(marginal propensity to consume) is 0.25
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