Lesson 03.04 copy

# Lesson 03.04 copy - I Carl lives in the Macro Islands What...

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03.04 Marginal Propensities and the Multiplier Formulas Activity On the AP exam, you will see references to MPC and MPS and you will use the multiplier to answer multiple choice questions. Fill in the two charts below and then use that information to answer the questions that follow. Please round all of your answers to two decimal places. When you are finished, save this document. You will submit this document as an attachment for assignment 03.04 Marginal Propensities and the Multiplier Formulas. Year Disposable Income (DI) Consumption (C) Savings (S) MPC ∆C / ∆DI MPS ∆S / ∆DI 1 \$1,000 \$1,200 2 \$2,000 \$2,000 3 \$3,000 \$2,800 4 \$4,000 \$3,600 5 \$5,000 \$4,400 6 \$6,000 \$5,200 7 \$7,000 \$6,000 MPC Spending Multiplier 1/MPS or 1/1-MPC Tax Multiplier -MPC/MPS 0.9 0.85 0.8 0.75 0.7 0.6 0.5 1. Assume that Carl and Wanda both 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.

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Unformatted text preview: I. Carl lives in the Macro Islands. What is Carl’s MPC? (Show the math) II. Wanda lives in the Micro Islands. What is Wanda’s MPS? (Show the math) 2. When businesses in the Macro Islands increased investment by \$20 million to attract tourists, aggregate demand increased by \$50 million. What is the MPC in the Macro Islands? Explain how you arrived at your answer. 3. Assume taxes increase by \$50 and government spending increases by \$50. The marginal propensity to consume is 0.75. Explain how GDP is impacted as a result. (Your answer should be a dollar amount and you must show how you arrived at your answer.) * Save this document. You will submit this document as an attachment for assignment 03.04 Marginal and Average Propensities and the Multiplier Formulas....
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Lesson 03.04 copy - I Carl lives in the Macro Islands What...

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