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Value of the multiplier & sum of saving

Suppose that the MPC is 0.8, while the sum of planned investment, government purchases, and net exports is $500 billion. Suppose also that the government budget is in balance.

What is the sum of saving and net taxes when desired spending equals real GDP? Explain.

What is the value of the multiplier?

Explain why the multiplier is related to the slope of the consumption function.

Solution Preview

Suppose that the MPC is 0.8, while the sum of planned investment, government purchases, and net exports is $500 billion. Suppose also that the government budget is in balance.

What is the sum of saving and net taxes when desired spending equals real GDP? Explain.

GDP equals aggregate expenditures of consumption, gross investment, government spending, and net exports
Sum of saving and net taxes when desired spending equals real GDP= Planned Investment +Government ...

Solution Summary

This explains the concept and computation of value of the multiplier, the sum of saving and net taxes, and how the multiplier is related to the slop of the consumption function.

$2.19