Question
Consider a closed economy in which the marginal propensity to consume is 0.50. a. What is the basic spending multiplier for this economy ( 0)?
Consider a closed economy in which the marginal propensity to consume is 0.50. a. What is the basic spending multiplier for this economy ( 0)? b. Assuming that investment (I) and taxes (T) are unaffected by the change, how would autonomous expenditure be affected (up or down, and by how much) by a 200 unit increase in government purchases? How would the equilibrium value of income be affected? c. Assuming that investment (I) and government purchases (G) are unaffected by the change, how would autonomous expenditure be affected (up or down, and by how much) by a 200 unit increase in taxes (T)? How would the equilibrium value of income be affected? d. What would be your answers to (c) and (d) if the marginal propensity to consume were, instead, 0.75?
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