Consider a hypothetical closed economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20. The marginal propensity to consume (MPC) for the economy is______, and the spending multiplier for the economy is______.
Consider a hypothetical closed economy in which households spend $0.80 of each additional dollar they earn and save the remaining $0.20.
The marginal propensity to consume (MPC) for the economy is______, and the spending multiplier for the economy is______.
suppose the government in this economy decides to decrease the government purchases by $300 billion. The decrease in government purchases will lead to a decrease in income generating an initial change in consumption equal to______. This decreases income yet again, causing a second change in consumption equal to_______. the total change in demand resulting from the initial change in government spending is_____________.
The following graph shows that aggregate demand curve (AD1) for this economy before the change in government spending.
Use the green line (triangle symbol) to plot the new aggregate demand curve (AD2) after the spending multiplier effect takes place.
Hint: be sure that the new aggregate demand curve (AD2) is parallel to the initial aggregate demand curve (AD1). You can see the slope of AD1 by selecting it on the graph.
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suppose the government in this economy decides to decrease government purchases by 300 billion decrease in government purchases will lead to a decrease in income generating an initial change in consumption equal to
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