3.04 - you arrived at your answer. MPC = Consumption /...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
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
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: you arrived at your answer. MPC = Consumption / 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...
View Full Document

Page1 / 2

3.04 - you arrived at your answer. MPC = Consumption /...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online