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Assume a simple, closed economy with no government

Economics

Assume a simple, closed economy with no government. The marginal propensity to consume (mpc)=0.8. Assume that firms expect the future sales and profits to fall, and they suddenly cut back (unintended) investment spending by 50 million. By how much will output eventually fall? B. Now assume the same as above, except that now the mpc=0.9. How much will output fall when investment spending drops by 50 million? C. Explain what the mpc value of 0.8 in part A above tells us about consumption.

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