x1veronica1x
New member
- Joined
- Jan 7, 2011
- Messages
- 1
Any input or advice would be great! Thank you.
1.Assume that Carl and Wanda each make $5,000. Each was given a raise of $1,000. Carl’s spending increased from $4,000 to $4,750. Wanda’s savings increased from $500 to $600.
MPC= change in consumption/change in income
I.Carl lives in the Macro Islands. What is Carl’s MPC? (Show the math)
Carl earns 1,000$ more.
Carl's MPC=750/1000=0.75
II.Wanda lives in the Micro Islands. What is Wanda’s MPS? (Show the math)
Wanda's MPS=100/1000=0.1.
2.When businesses in the Macro Islands increased investment by $20 million to attract tourists, GDP increased by $50 million. What is the MPC in the Macro Islands? Explain how you arrived at your answer.
Multiplier in Macro Island= 50/20=2.5=1/1-MPC,
5-2.5MPC=1
MPC=1.5/2.5=0.6
3.Assume taxes increase by $200 and government spending increases by $200. The marginal propensity to consume is 0.75. Explain how GDP is impacted as a result. (Your answer must include the amount of change in GDP, and you must show how you arrived at your answer.)
the multiplier of taxes=MPC/1-MPC=0.75/1-0.75=0.75/0.25=3
the multiplier of government spending=1/1-MPC=1/1-0.75=1/.25=4
The tax increase will reduce GDP=200 x 3=$600
The government spending will increase GDP=200x4=$800
Total income will increase=800-600=$200.
4.Calculate the marginal propensity to consume when a decrease in investment of $10 billion causes RGDP to decrease by $50 billion.
1/1-MPC=50/10=5
5-5MPC=1
MPC=4/5=0.8
1.Assume that Carl and Wanda each make $5,000. Each was given a raise of $1,000. Carl’s spending increased from $4,000 to $4,750. Wanda’s savings increased from $500 to $600.
MPC= change in consumption/change in income
I.Carl lives in the Macro Islands. What is Carl’s MPC? (Show the math)
Carl earns 1,000$ more.
Carl's MPC=750/1000=0.75
II.Wanda lives in the Micro Islands. What is Wanda’s MPS? (Show the math)
Wanda's MPS=100/1000=0.1.
2.When businesses in the Macro Islands increased investment by $20 million to attract tourists, GDP increased by $50 million. What is the MPC in the Macro Islands? Explain how you arrived at your answer.
Multiplier in Macro Island= 50/20=2.5=1/1-MPC,
5-2.5MPC=1
MPC=1.5/2.5=0.6
3.Assume taxes increase by $200 and government spending increases by $200. The marginal propensity to consume is 0.75. Explain how GDP is impacted as a result. (Your answer must include the amount of change in GDP, and you must show how you arrived at your answer.)
the multiplier of taxes=MPC/1-MPC=0.75/1-0.75=0.75/0.25=3
the multiplier of government spending=1/1-MPC=1/1-0.75=1/.25=4
The tax increase will reduce GDP=200 x 3=$600
The government spending will increase GDP=200x4=$800
Total income will increase=800-600=$200.
4.Calculate the marginal propensity to consume when a decrease in investment of $10 billion causes RGDP to decrease by $50 billion.
1/1-MPC=50/10=5
5-5MPC=1
MPC=4/5=0.8