The government-purchases multiplier and the MPC Consider two dosed economies tha

Question

The government-purchases multiplier and the MPC Consider two dosed economies that arc identical except for their marginal propensity to consume (MPC). Each economy is currently In equilibrium with income and planned expenditure equal to dollar 100 billion, as shown by the black Xs on the following two graphs. Neither economy has taxes that change with income. The grey lines show the 45-degree line on each graph. The first economy's MPC Is 0.5. Therefore, its Initial planned-expenditure function has a slope of 0.5 and passes through the point (100, 100).

Explanation / Answer

Please tell me by how much the planned expenditure of the economy increases so that I can shift the PE curve to explain you the new equilibrium point. We will shift the PE line by amount of the amount of the increase and get the new equilibrium point.

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