The following table shows alternative hypothetical economies and the relevant va

Question

The following table shows alternative hypothetical economies and the relevant values for the marginal propensity to consume out of disposable income (MPC), the net tax rate (t), and the marginal propensity to import (m). Recall that z, the marginal propensity to spend out of national income, is given by the simple expression z = MPC(1-t) - m. By using this expression, compute z and the simple multiplier for each of the economies and fill in the table. (Round your response to two decimal places. In computing the simple multiplier, use the rounded values of z obtained in column "z".) Economy MPC t m z = MPC(1 - t) - m Simple Multiplier = 1/(1 - z) A 0.75 0.20 0.20 B 0.75 0.20 0.20 C 0.75 0.30 0.40 D 0.80 0.30 0.40 Compare Economies A and B (they differ only by the value m). When a country has a higher marginal propensity to import any change in autonomous spending will have of an impact on equilibrium GDP. This is reflected in the table, since as m increases, the multiplier Compare Economies B and C (they differ only by the value of t). When a country has a higher net tax rate, any change in autonomous spending will have of an impact on equilibrium GDP. This is reflected in the table, since as t increases, the multiplier. Compare Economies C and D (they differ only by the value of MPC). When a country has a higher marginal propensity to consume, any change in autonomous spending will have of an impact on equilibrium GDP. This is reflected in the table, since as MPC increases, the multiplier .

Explanation / Answer

ans b) less , decreases

c) less , decreases

d) more    , increases

economy MPC t m z simple multiplier A 0.75 0.2 0.2 0.4 1.67 B 0.75 0.2 0.4 0.2 1.25 C 0.75 0.3 0.4 0.125 1.14 D 0.8 0.3 0.4 0.16 1.19

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