Question

How does the size of the multiplier relate to the size of the marginal propensity to...

How does the size of the multiplier relate to the size of the marginal propensity to consume? Does this relationship have any relationship to economic policy

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Ans:

Marginal propensity to consume and the value of multiplier are positively related. It means when the value of marginal propensity to consume increases then the value of the multiplier will also increase.

Multiplier = 1/ ( 1 - MPC )

Where , MPC stands for Marginal propensity to consume.

This relationship have a relationship to economic policy. It helps to increase or decrease the money supply during business cycles. Also it helps to achieve a desired result of both fiscal policy and monetary policy.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1. What are the 4 phases of the business cycle? 2. How long does a business...
1. What are the 4 phases of the business cycle? 2. How long does a business cycle last? 3. What causes each phase? 4. How does the size of the multiplier relate to the size of the marginal propensity to consume? 5. Does this relationship have any relationship to economic policy?
How are marginal propensity to Consume and marginal Propensity to Save calculated?
How are marginal propensity to Consume and marginal Propensity to Save calculated?
Discuss and explain what effect a reduction in the marginal propensity to consume has on the...
Discuss and explain what effect a reduction in the marginal propensity to consume has on the size of the multiplier. How it is going to impact the effect of government policies ?
Keynesian model: 1. Define the multiplier 2. Let the marginal propensity to consume = .9; what...
Keynesian model: 1. Define the multiplier 2. Let the marginal propensity to consume = .9; what is the effect of increasing Investment spending by 50?
~Explain the marginal propensity to consume & save. ~List & explain the reasons why investment is...
~Explain the marginal propensity to consume & save. ~List & explain the reasons why investment is unstable. ~Explain the multiplier effect & how the multiplier is computed.
In a closed economy, the marginal propensity to save increases and tax rates remain unchanged. What...
In a closed economy, the marginal propensity to save increases and tax rates remain unchanged. What effect will this have on the marginal propensity to consume and on the multiplier? Assume that the MPS increases from 1/3 to 1/4 and tax rate is 0.20.
true or false An increase in the marginal tax rate increases the investment multiplier, while an...
true or false An increase in the marginal tax rate increases the investment multiplier, while an increase in the marginal propensity to consume lowers it.
Why is it important to consider the marginal propensity to withdraw when assessing the multiplier effect?
Why is it important to consider the marginal propensity to withdraw when assessing the multiplier effect?
Assuming a fixed amount of taxes in a closed economy and that the marginal propensity to...
Assuming a fixed amount of taxes in a closed economy and that the marginal propensity to consume equals 0.50 calculate the value of the following multipliers be sure to use a negative sign to show if a multiplier has a negative value the government purchases multiplier equals? The tax multiplier equals? The balanced budget multiplier equals?
For a simple model of the expenditure sector without any government involvement, derive the multiplier in...
For a simple model of the expenditure sector without any government involvement, derive the multiplier in terms of the marginal propensity to save (s) rather than the marginal propensity to consume (c). does this formula still hold when the government enters the picture and levies an income tax?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT