If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the MPC in the economy is 0

Economics Jun 06, 2021

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the MPC in the economy is

0.8.
0.6.
0.2.
0.9.

Expert Solution

Computation of MPC in the Economy:

MPC = Income Created in the Second Round / Income Created in the First Round

= 160/200

MPC = 0.8

So, the correct option is 1st "0.8".

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote