Krugman's Economics For The Ap® Course
Krugman's Economics For The Ap® Course
3rd Edition
ISBN: 9781319113278
Author: David Anderson, Margaret Ray
Publisher: Worth Publishers
Question
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Chapter 16, Problem 2CYU
To determine

The question requires us to determine the value of the spending multiplier when mpc is 0.5 and 0.8.

Expert Solution & Answer
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Explanation of Solution

a) When MPC is 0.5

Spending multiplier is:

  ΔYΔAS=11-MPC=11-0.5=10.5=2

Therefore, the value of the spending multiplier is 2.

b) When MPC is 0.8

Spending multiplier is:

  ΔYΔAS=11-MPC=11-0.8=10.2=5

Therefore, the value of the spending multiplier is 5.

Economics Concept Introduction

The spending multiplier shows the impact of change in aggregate spending on the real GDP. The expression for spending multiplier is the following:

  ΔYΔAS=11-MPC

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