mpc.docx - a Explain the concepts of marginal propensity to consume(MPC and marginal propensity to save(MPS(2pts The MPC is the fraction of any

# mpc.docx - a Explain the concepts of marginal propensity to...

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a) Explain the concepts of marginal propensity to consume (MPC) and marginal propensity to save (MPS). (2pts) The MPC is the fraction of any additional income that is consumed (spent on consumption) while the MPS the fraction of any additional income that is saved. b) What is the MPC for this economy? (2pts) The MPC for this economy is 0.4 c) Explain the concepts of the autonomous spending and tax multipliers. (2pts) The autonomous tax multiplier is a multiple by which equilibrium income changes when any component of autonomous spending changes. The autonomous tax multiplier is the multiple by which equilibrium income changes when there is a change in autonomous tax. d) What is the autonomous spending multiplier for this economy? (2pts) The autonomous spending multiplier for this economy is: 1/1−MPC = 1/1−0.4 = 1.67 e) What is the equilibrium level of income for this economy? (3pts) In equilibrium Y=AD. ????D =????+????+???? = 320+0.4(????−200)+150+275

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