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sergeinik
1 month ago
5

Consider a hypothetical closed economy in which households spend $0.65 of each additional dollar they earn and save the remainin

g $0.35. The marginal propensity to consume (MPC) for this economy is , and the spending multiplier for this economy is .
Business
1 answer:
Free_Kalibri [3.7K]1 month ago
7 0

Answer:The marginal propensity to consume (MPC) is 0.65

The multiplier or k = 2.85714 rounded to 2.86

Explanation:

The MPC pertains to the fraction of additional disposable income that consumers choose to spend. It is used to gauge the consumption increase driven by rising income.

MPC can be calculated as follows,

MPC = Change in consumption / change in income

MPC = 0.65 / 1

MPC = 0.65

To derive the multiplier, we apply this formula,

Multiplier or k = 1 / (1 - MPC)

k = 1 / (1 - 0.65)

k = 2.85714 rounded to 2.86

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