Calculate the values for each of the questions below. Assume that in each countr

Question

Calculate the values for each of the questions below. Assume that in each country there are no taxes international trade or inflation, and that interest rates are fixed. The Italian government decides to stimulate the economy by sending checks worth $70 billion to Italian consumers. If the (government spending) multiplier is 1.5, calculate the MPC to determine the final change in Italy's real GDP due to the transfer? Please give your answer as a whole number in billions of dollars. Incorrect. You may have provided the correct answer for this question if this were direct government spending. However, this is a transfer payment, not government spending. How does that affect the end result? The Greek government decides to introduce new austerity measures, which reduce government direct spending by $16 billion. Greece has a marginal propensity to consume of 0.6. What will be the final change in real GDP be as a result of this decreased spending? Please give your answer as a whole number in billions of dollars. The Japanese government decides to stimulate the economy by increasing direct spending by $70 billion. If the final change in real GDP is $280 billion, what is Japanese consumers' marginal propensity to consume (MPC)? Please round your answer to two decimal places.

Explanation / Answer

Transfer payment = $70 billion

Government Spending multiplier = 1.5 = 1 / 1 - MPC , MPC = 0.33

Transfer payment Multiplier = MPC / 1 - MPC = .33 / 1-.33 = 0.492

So, change in real GDP = 0.492 * 70 =$ 34.47 or, $34 billion.

Rest are correct

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.