An article published in an economics journal found the following: For the poorest households, the marginal propensity
Question:
An article published in an economics journal found the following: "For the poorest households, the marginal propensity to consume was close to 70%. For the richest households, the MPC was only 35%." Assume that the macroeconomy can be divided into three sections. Section A consists of the poorest households, Section B consists of the richest households, and Section C consists of all other households.
a. Compute the value of the multiplier for Section A.
b. Compute the value of the multiplier for Section B.
c. Assume that there was an increase in planned investment of $4 billion. Compute the change in equilibrium real GDP if the MPC for the economy was 70 percent (or 0.70). Compute the change in equilibrium real GDP if the MPC for the economy was 35 percent (or 0.35).
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