MPC
MPC stands for ...
What is Marginal Propensity to Consume?
MPS stands for ...
What is Marginal Propensity to Save?
The formula for the spending multiplier is ...
What is 1 / MPS?
The formula for the tax multiplier
What is - MPC / MPS
Formula for MPC
What is change in consumption divided by change in disposable income?
If MPC is .75, MPS is ...
What is .25?
The MPC is .75 and the government increases spending by $10 million, the maximum change in GDP is:
What is $40 million increase?
4 x $10 million = $40 million increase
Assume that the marginal propensity to consume is 0.90. As a result of an increase in the tax rates, the government collects an additional $20 million. What will be the impact on gross domestic product (GDP) ?
What is GDP will decrease by a maximum of $180 million?
MPC + MPS
What is 1?
Bonus 300
What is 300 free points?
The MPC is .5 and there is a $1000 increase in autonomous consumption. The maximum change in GDP is:
What is $2000 increase?
Bonus 300
What is 300 free points?
Sophy's MPC is .9 Her income decreases by $100. Sophy's savings decrease by ...
What is $10?
$100 x .1 = $10
Jane's income increases $1000 and her spending increases $750. Her MPS is ...
$750 / $1000 = .75
1 - .75 = .25
The MPS is 1/3 and there is a $10 million decrease in private investment. The maximum change in GDP is:
What is $30 million decrease?
3 x $10 million = $30 million decrease
Savings. Disposable Income
$2,000. $10,000
$2,200. $12,000
Based on the data on savings and disposable income in the table above, what are the income tax multiplier and the spending multiplier?
What is the tax multiplier is -9 and the spending multiplier is 10?
The tax multiplier =−MPC/(1−MPC)=−0.9/(1−0.9)=−9
The spending multiplier =1(1−MPC)=1(1−0.9)=10 .
Zen's income changes from $1500 to $2000 and his savings increases by $400. What is his MPC?
Change in consumption / change in income
$100 / $500 = .2
Josue has an MPC of .7. If his monthly savings increases from $800 to $1100 and his income was $2000, what is his income now?
What is $3000?
($300/.3) + $2000 = $3000
The MPS is .25 and there is a $6 million negative GDP gap. What is the minimum government spending change needed to close the gap?
What is a $1.5 million increase?
$6 million / 4 = $1.5 million increase
Assume the marginal propensity to consume is 0.8. How will a decrease in taxes of $100 billion and a decrease in government spending of $100 billion affect aggregate demand?
What is aggregate demand will decrease by $100 billion?
The decrease in government spending will initially reduce income by the entire $100 billion because it is taking money out of the economy.
The spending multiplier is =11−MPC=11−0.8=5, so the decrease in spending will change aggregate demand by −$100 billion × 5 = −$500 billion.
The tax multiplier is =−MPC1−MPC=−0.81−0.8=−4, so the tax cut will only change aggregate demand by −$100 billion × −4 = $400 billion.
Therefore, the net effect on aggregate demand (−$500 billion + $400 billion) is a decrease of $100 billion.