Consider a hypothetical closed economy in which households spend $0.70 of each additional dollar they earn and save the remaining $0.30. The marginal propensity to consume (MPC) for this economy is Y and the multiplier for this economy is Suppose the government in this economy decides to decrease government purchases by $300 billion. The decrease in government purchases will This decreases income yet again, causing a lead to a decrease in income, generating an initial change in consumption equal to second change in consumption equal to The total change in demand resulting from the initial change in government spending
Consider a hypothetical closed economy in which households spend $0.70 of each additional dollar they earn and save the remaining $0.30. The marginal propensity to consume (MPC) for this economy is Y and the multiplier for this economy is Suppose the government in this economy decides to decrease government purchases by $300 billion. The decrease in government purchases will This decreases income yet again, causing a lead to a decrease in income, generating an initial change in consumption equal to second change in consumption equal to The total change in demand resulting from the initial change in government spending
Chapter11: Managing Aggregate Demand: Fiscal Policy
Section: Chapter Questions
Problem 2TY
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