Explore BrainMass
Share

Explore BrainMass

    Multiplier Effect for Marginal Propensity

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    I know that the multiplier is 1/(1-MPC), but I am not certain about the MPM.

    Given MPC = 0.80 and Marginal Propensity to Import (MPM) = 0.5, calculate the impact of:

    (a) If the Government decides to increase its purchases of goods and services by $100 billion , what would be the increase in aggregate spending?

    (b) To achieve the same impact on the economy through tax changes, in what direction and how much (in dollars) would the taxes have to change?

    © BrainMass Inc. brainmass.com October 9, 2019, 7:20 pm ad1c9bdddf
    https://brainmass.com/economics/personal-finance-savings/multiplier-effect-marginal-propensity-115087

    Solution Preview

    (a) If the Government decides to increase its purchases of goods and services by $100 billion, what would be the increase in aggregate spending?

    The Government spending multiplier = ΔY / ...

    Solution Summary

    The expert examines the multiplier effects for marginal propensity.

    $2.19