In a new study business school professors Christian Broda of the University of C

Question

In a new study business school professors Christian Broda of the University of Chicago and Jonathan Parker of Northwestern University conclude the stimulus payments "are providing a substantial stimulus to the national economy, helping to ameliorate the ongoing 2008 downturn." U.S. households are "doing a significant amount of extra spending" because of the $90 billion in government payments that have gone out so far, they say. As outlined in the The Wall Street Journal today, the preliminary assessment found that the typical family increased its spending on food, mass merchandise and drug products by 3.5 percent once the rebastes arrived relative to a family that hadn't received its rebate yet. The average family spent about 20 percent of its rebate in the first month after receipt, a slightly faster pace than with the 2001 rebates. The authors estimate that nondurable consumption-a piece of consumer spending that excludes big-ticket items such as refrigerators and televisions-rose by 2.4 percent in the second quarter as a direct result of the stimluuls payments. It'll be boosted by 4.1 percent in the current quarter, they estimate

What was the short-run (one-month) MPC for the 2008 tax rebates?

Explanation / Answer

The short-run (one-month) MPC for the 2008 tax rebates is 0.20. This is because on an average family spent about 20% of its rebate in the first month after receipt.

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