# 3.04 - you arrived at your answer MPC = Δ Consumption Δ...

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Once you have finished practicing calculating MPC, MPS, and the multipliers, complete the problems below. Submit your answers in the student comments area of assignment 3.04 or attach them as a file. Assume that Carl and Wanda each make \$5,000. Each was given a raise of \$1,000. Carl’s spending increased from \$4,000 to \$4,750. Wanda’s savings increased from \$500 to \$600. Carl lives in the Macro Islands. What is Carl’s MPC? (Show the math) MPC = Δ Consumption / Δ Income MPC= (4750-4000)/(1000)=.75 Wanda lives in the Micro Islands. What is Wanda’s MPS? (Show the math) MPS = Δ Savings/ Δ Disposable Income MPS=(600-500)/(1000)=.1 2. When businesses in the Macro Islands increased investment by \$20 million to attract tourists, GDP increased by \$50 million. What is the MPC in the Macro Islands? Explain how

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Unformatted text preview: you arrived at your answer. MPC = Δ Consumption / Δ Income 20,000,000/50,000,000=.4 The businessmen "consumed" 20 million dollars in investments and received 50 million dollars in return as their "income" 3. Assume taxes increase by \$200 and government spending increases by \$200. The marginal propensity to consume is 0.75. Explain how GDP is impacted as a result. (Your answer must include the amount of change in GDP, and you must show how you arrived at your answer.) Tax multiplier=MPC/MPS=.75/.25=3 Expenditure multiplier= 1/1-.75=4 3 x \$200 4 x \$200-800+600=\$200 decrease in GDP 4. Calculate the marginal propensity to consume when a decrease in investment of \$10 billion causes RGDP to decrease by \$50 billion. MPC= delta \$10 billion/ delta \$50 billion=.2...
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3.04 - you arrived at your answer MPC = Δ Consumption Δ...

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