Suppose that the government determined that the amount by which the AD curve had to be shifted directly rightward from point E1
was equal to $1.37 trillion. If the government decided that a $0.28
trillion increase in real government spending was required to generate this shift, what must be the value of the MPC?
To determine the value of the MPC, we can use the formula:
MPC = Change in Real GDP / Change in Real Government Spending
In this case, the change in real government spending is given as $0.28 trillion. The change in real GDP, which is equal to the amount by which the AD curve has to be shifted rightward, is given as $1.37 trillion.
Therefore, the value of the MPC is:
MPC = $1.37 trillion / $0.28 trillion
MPC ≈ 4.89
So, the value of the MPC is approximately 4.89.
wrong answer. Keynesian spending multiplier =1/( 1 - MPC)
I apologize for the mistake. The correct formula to determine the MPC is:
MPC = 1 / Keynesian spending multiplier
Given that the government determined that a $0.28 trillion increase in real government spending was required to generate a $1.37 trillion shift in the AD curve, we can calculate the Keynesian spending multiplier:
Keynesian spending multiplier = Change in Real GDP / Change in Real Government Spending
Keynesian spending multiplier = $1.37 trillion / $0.28 trillion
Keynesian spending multiplier ≈ 4.89
Now, we can calculate the MPC using the formula:
MPC = 1 / Keynesian spending multiplier
MPC = 1 / 4.89
MPC ≈ 0.204
Therefore, the value of the MPC is approximately 0.204.
the correct answer is 0.80. Do you know how?
I apologize for the incorrect response earlier. To calculate the value of the MPC, we can use the formula:
MPC = Change in Real GDP / Change in Real Government Spending
In this case, the change in real government spending is given as $0.28 trillion. The change in real GDP, which is equal to the amount by which the AD curve has to be shifted rightward, is given as $1.37 trillion.
Therefore, the value of the MPC is:
MPC = $1.37 trillion / $0.28 trillion
MPC ≈ 4.89
However, this answer does not appear to be correct. To determine the correct value of the MPC, we can use the formula for the Keynesian spending multiplier, which is the inverse of the MPC:
Keynesian spending multiplier = 1 / (1 - MPC)
Given that the Keynesian spending multiplier is equal to 4.89, we can rearrange the formula to solve for the MPC:
1 / (1 - MPC) = 4.89
Solving for MPC:
1 - MPC = 1 / 4.89
MPC = 1 - 1 / 4.89
MPC ≈ 0.796
Therefore, the correct value of the MPC is approximately 0.796 or 0.80.
To determine the value of the MPC (Marginal Propensity to Consume), we need to use the formula:
MPC = (Change in consumption / Change in income)
In this case, the change in income is equal to the increase in real government spending, which is $0.28 trillion. We also know that the shift in the AD curve is $1.37 trillion.
Since the shift in the AD curve is the total change in income, it can be written as:
Change in income = Change in consumption + Change in saving
Since saving can be expressed as:
Saving = (1 - MPC) * income
We can substitute this equation into the first equation:
Change in income = Change in consumption + [(1 - MPC) * Change in income]
Now we can solve for the MPC:
$1.37 trillion = Change in consumption + (1 - MPC) * $0.28 trillion
Multiplying out:
$1.37 trillion = Change in consumption + $0.28 trillion - MPC * $0.28 trillion
Rearranging the equation:
Change in consumption = $1.37 trillion - $0.28 trillion + MPC * $0.28 trillion
Simplifying:
Change in consumption = $1.09 trillion + MPC * $0.28 trillion
Since we know that the change in income is equal to the change in consumption, we can rewrite the equation as:
$1.37 trillion = $1.09 trillion + MPC * $0.28 trillion
Now we can solve for the value of MPC:
$0.28 trillion * MPC = $1.37 trillion - $1.09 trillion
$0.28 trillion * MPC = $0.28 trillion
MPC = $0.28 trillion / $0.28 trillion
MPC = 1
Therefore, the value of the MPC is equal to 1.
To find the value of the marginal propensity to consume (MPC), we can use the information provided in the question.
The MPC represents the proportion of additional income that is spent on consumption. It indicates how much individuals tend to spend out of an increase in income.
In this case, we have been given that a $0.28 trillion increase in real government spending is required to generate a $1.37 trillion rightward shift in the aggregate demand (AD) curve.
The formula to calculate the value of the MPC is:
MPC = Change in Consumption / Change in Income
Since the increase in government spending is equal to the change in income, we can use it as the change in income in our formula.
Therefore, the MPC can be calculated as:
MPC = $0.28 trillion / $1.37 trillion
MPC = 0.2044
So, the value of the MPC is approximately 0.2044.