If a $10b decrease in investment causes the economy’s equilibrium level of income to decrease from $300b to $200b, what is the value of the MPS?Select one:a.0.9b.0.1c.1.0d.$100b
Solution
The question is asking for the Marginal Propensity to Save (MPS), but the information given allows us to calculate the multiplier, which is related to the Marginal Propensity to Consume (MPC), not the MPS.
The formula for the multiplier is:
Multiplier = 1 / (1 - MPC)
or
Multiplier = 1 / MPS
The multiplier can be calculated from the change in income divided by the change in investment. In this case, the change in income is 200b = 10b.
So, the multiplier is 10b = 10.
Now, we can use the multiplier to find the MPS.
MPS = 1 / Multiplier
MPS = 1 / 10 = 0.1
So, the answer is:
b. 0.1
Similar Questions
Assume in a private economy that the equilibrium level of income is $410 and the MPS is 0.25. Now suppose government collects taxes of $65 and spends the entire amount. Calculate the new equilibrium level of income.
A decrease in the MPC may cause ______________.a.A fall in the equilibrium incomeb.An increase in the equilibrium income.c.It does not affect the equilibrium incomed.The government spending multiplier riseClear my choiceQuestion 8Not yet answeredMarked out of 1.00Flag questionQuestion textThe variable that connects the market of money and the market of goods via investment spending is ________.a.The MPCb.The interest ratec.The MPSd.The CPI
The higher is the MPS, _____________.a.Lower is the multiplier.b.Higher is the investment spendingc.Higher is the equilibrium income.d.Higher is the multiplier
The economy has a consumption function of $50b + 0.75Y and an equilibrium level of GDP of $1000b. There is now an increase in investment of $25b. What is the new equilibrium level of GDP?Select one:a.$1200bb.$1100bc.$1250bd.$1400b
Consider an economy with the following values: Autonomous Consumption = 1,200Autonomous Taxes = 1,750Planned Investment = 2,800Government Expenditure = 1,950Autonomous Net Exports = 350Marginal Propensity to Consume = 0.7Marginal tax rate = 0.16Marginal propensity to import = 0.08 Calculate the equilibrium level of income. Provide answer to 2 decimal points
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.