Question

If the MPC is .8, What is the simple government spending multiplier and the simple tax multiplier? Government spending multiplier is 10 and tax multiplier is 10. Government spending multiplier is 9 and tax multiplier is 10. Government spending multiplier is 9 and tax multiplier is 9. Government spending multiplier is 5 and tax multiplier is 4.

          If the MPC is .8, What is the simple government spending multiplier and the simple tax multiplier?
Government spending multiplier is 10 and tax multiplier is 10.
Government spending multiplier is 9 and tax multiplier is 10.
Government spending multiplier is 9 and tax multiplier is 9.
Government spending multiplier is 5 and tax multiplier is 4.

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If the MPC is .8, What is the simple government spending multiplier and the simple tax multiplier?
Government spending multiplier is 10 and tax multiplier is 10.
Government spending multiplier is 9 and tax multiplier is 10.
Government spending multiplier is 9 and tax multiplier is 9.
Government spending multiplier is 5 and tax multiplier is 4.

Added by Lourdes R.

Principles of Economics

Gregory Mankiw 8th Edition

Instant Answer

Solved by Expert Jennifer Stoner

12/29/2022

Step 1

In this case, the MPC is 0.8, so the government spending multiplier is 1/(1-0.8) = 1/0.2 = 5. Show more…

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f 83 If the MPC is .8, What is the simple government spending multiplier and the simple tax multiplier? Government spending multiplier is 10 and tax multiplier is 10 . Government spending multiplier is 9 and tax multiplier is 10 . Government spending multiplier is 9 and tax multiplier is 9 . Government spending multiplier is 5 and tax multiplier is 4 . f83 If the MPC is .8, What is the simple government spending multiplier and the simple tax multiplier? Government spending multiplier is 10 and tax multiplier is 10 Government spending multiplier is 9 and tax multiplier is 10 Government spending multiplier is 9 and tax multiplier is 9. O Government spending multiplier is 5 and tax multiplier is 4.

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Transcript

00:02 Part 1.

00:04 Assume that taxes depend on income.

00:07 Mpc, the marginal propensity to consume, is 0 .8, and t is 0 .25.

00:15 It's the government spending multiplier.

00:18 Our choices are a, 1 .67, b, 2 .5, c, 0 .5, d, 10.

00:28 So to determine the multiplier, we take 1 divided by 1 minus the marginal propensity to consume times 1 minus t.

00:46 Now, we know the mpc and the t, we were given that information, so we can just use substitution at this point to solve.

00:53 I get 1 over 1 over 1 minus 0 .8 times 1 minus 0 .25.

01:01 This gives me 1 over 1 minus 0 .8 times, well, 1 minus 0 .5 is 0 .75.

01:10 I get 1 over 1 minus, and now we're going to take 0 .8 times 0 .75, and we get 0 .6.

01:22 1 over 1 minus 0 .6 is 0 .4 .1 divided by 0 .4 is 2 .5.

01:30 And we find that our answer is b 2 .5.

01:38 Part 2.

01:41 If taxes depend on income and the marginal propensity to consume is 0 .6 and t is 0 .3, the tax multiplier.

01:52 So this back here in part one, this was the government spending multiplier.

02:01 And here we're going to figure out the tax multiplier.

02:09 And our choices are a, negative 1 .03, b, negative 1 .0 .3.

02:13 B, negative 1 .5.

02:14 0 .72, c, negative 2 .0, and d is negative 2 .24...

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