Question

If, in an economy, a $200 billion increase in consumption spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the marginal propensity to consume and the multiplier are, respectively,0.8 and 5.0.

Answer 1

The multiplier is 0.8, and the marginal propensity to consume is 5.0.

The marginal propensity to consume when consumption and income vary, C and Y, respectively, is equal to C/Y.

$160 billion is the total change in consumption.

The increase in income is $200 billion.

The marginal propensity to consume is therefore equal to $160 billion divided by $200 billion, or 0.8.

The factor 1/(1 MPC), which is 1/(1-0.8) = 1/0.2 = 5.0, is the multiplier's official definition.

The marginal propensity to consume is the portion of a consumer's overall pay rise that they decide to spend on buying goods and services rather than saving (MPC). Marginal propensity to consume is a term used in Keynesian macroeconomic theory.

The marginal propensity to consume and the multiplier are, respectively, if a $200 billion increase in consumer expenditure generates $200 billion in additional revenue in the first round of the multiplier process and $160 billion in the second round.

a. 0.2 and 1.25.

b. 0.4 and 1.67.

c. 0.4 and 2.5.

d. 0.8 and 5.0.

To know more about Consumption, click the below link

https://brainly.com/question/14933604

#SPJ4