A) Find thevalue of multiplierif:

a) MPC =0.39

b) MPS =0.64

(B) If thevalue of multiplier is2.49 then find out:

a) MPC

b) MPS

(C) What is therelationshipbetween the value of multiplier and MPC?

(D) Find thechange in equilibriumlevel of output when there is a $25 increasein investment spendingand the MPC is 0.75.

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Darryn D'SouzaLv10

28 Sep 2019

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Due to an increase in consumer wealth, there is a $40 billion autonomous increase in consumer spending in the economies of Westlandia and Eastlandia. Assuming that the aggregate price level is constant, the interest rate is fixed in both countries, and there are no taxes and no foreign trade, complete the accompanying tables to show the various rounds of increased spending that will occur in both economies if the marginal propensity to consume is 0.5 in Westlandia and 0.75 in Eastland. What do your results indicate about the relationship between the size of the marginal propensity to consume and the multiplier?

Incremental Total change change Rounds in GDP in GDP 1 C = $40 billion ? 2 MPC C = ? ? 3 MPC MPC C = ? ? 4 MPC MPC MPC C = ? ? . . . . . . . . .

Total change in GDP (1/(1 MPC)) C ? Eastlandia Incremental Total change change Rounds in GDP in GDP 1 C = $40 billion ? 2 MPC C = ? ? 3 MPC MPC C = ? ? 4 MPC MPC MPC C = ? ? . . . . . . . . . Total change (1/(1 MPC)) C?

amberkangaroo947

Specific assignment: Mark each statement either True or False. If a statement is false, explain (very briefly) why it is false.

Keynes hypothesized that consumption is positively related to income. True

The marginal propensity to consume, MPC, is measured as changes in consumption over changes in income. True

The MPC is merely the percent of oneâs income that is spent to purchase goods and services. True

The MPC is the slope of the consumption function.

If the MPC is .8, then it may be concluded that the MPS must be .2.

If a personâs income is $10,000 and that person is spending $7,500 on consumption, then it may be concluded that that person has a marginal propensity to save of .25.

The MPC and the MPS must sum to one, meaning that 1 â MPC = MPS

Given a linear (straight-line) consumption function, the MPC must be a constant.

At the point graphically at which the consumption function intersects the 45-degree reference line, the MPC must be equal to 1.

If the consumption function lies above the 45-degree reference line, then there must be negative saving in the economy.

Autonomous consumption is that level of consumption spending that is independent of the level of income.

A change in the level of income will shift the consumption function either upward or downward.

A change in the level of consumer wealth will shift the consumption function either upward or downward.

If the MPC has a positive value, then the MPS must have a negative value.

Saving is defined simply as disposable income minus consumption.

If the consumption function has a slope of 4/5, then the saving function must have a slope of .2.

Any factor that would shift the consumption function upward would shift the saving function upward also.

The average propensity to consume (APC), like the MPC, is simply the slope of the basic, Keynesian consumption function.

Given a typical shaped consumption function, as the level of income rises, the APC rises as well.

If a consumption function graphically starts at a point above the origin (i.e., has a positive vertical axis intercept), then the saving function must begin below the origin.

A dramatic rise in household inflationary expectations could be expected to shift the consumption function downward and the saving function upward.

Which of the following is eliminated when the economy's output is equal to full-employment GDP?

a. The real GDP gap

b. Leakages and injections

c. The MPC

d. The multiplier