Question
1a) $20 million of new investment has been added to the American economy, the current MPS (marginal propensity to save) is 0.40, and tax rate
1a) $20 million of new investment has been added to the American economy, the current MPS (marginal propensity to save) is 0.40, and tax rate (t) is 0.12. By how much will aggregate spending and income increase as a result of the $20 million increase in investment spending (7 marks) .
A small country X with agriculture as the main driver of its economy has been hit by a drought. The households expect their wealth to be negatively impacted in the medium term.
1b) Use the concept of precautionary savings to explain how the houoseholds of X could respond to these negative expectation about the impact on their future wealth?(3 marks)
1c) How would the household's behaviour impact the aggregate demand curve for X?(2marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started