Due to an increase in consumer wealth, there is a $40 billion autonomous increase in consumer spending in the economies of Westlandia and Eastlandia. Assuming that the aggregate price level is constant, the interest rate is fixed in both countries, and there are no taxes and no foreign trade, complete the accompanying tables to show the various rounds of increased spending that will occur in both economies if the marginal propensity to consume is 0.5 in Westlandia and 0.75 in Eastland. What do your results indicate about the relationship between the size of the marginal propensity to consume and the multiplier?
Incremental Total change change Rounds in GDP in GDP 1 C = $40 billion ? 2 MPC C = ? ? 3 MPC MPC C = ? ? 4 MPC MPC MPC C = ? ? . . . . . . . . .
Total change in GDP (1/(1 MPC)) C ? Eastlandia Incremental Total change change Rounds in GDP in GDP 1 C = $40 billion ? 2 MPC C = ? ? 3 MPC MPC C = ? ? 4 MPC MPC MPC C = ? ? . . . . . . . . . Total change (1/(1 MPC)) C?
Due to an increase in consumer wealth, there is a $40 billion autonomous increase in consumer spending in the economies of Westlandia and Eastlandia. Assuming that the aggregate price level is constant, the interest rate is fixed in both countries, and there are no taxes and no foreign trade, complete the accompanying tables to show the various rounds of increased spending that will occur in both economies if the marginal propensity to consume is 0.5 in Westlandia and 0.75 in Eastland. What do your results indicate about the relationship between the size of the marginal propensity to consume and the multiplier?
Incremental Total change change Rounds in GDP in GDP 1 C = $40 billion ? 2 MPC C = ? ? 3 MPC MPC C = ? ? 4 MPC MPC MPC C = ? ? . . . . . . . . .
Total change in GDP (1/(1 MPC)) C ? Eastlandia Incremental Total change change Rounds in GDP in GDP 1 C = $40 billion ? 2 MPC C = ? ? 3 MPC MPC C = ? ? 4 MPC MPC MPC C = ? ? . . . . . . . . . Total change (1/(1 MPC)) C?
