1) If policies were put in place to increase investement spending by $50 billion, what would be the potential effect on RGDP if mpc =.80? Explain.
Because the mpc is so high it means that people are willing to spend a lot of their disposable income. It also means that there will be more consumption and the RGDP will go up because more goods and services will be demanded, and more money will circulate through the economy.
2) If disposable income remains the same, how can consumption change?
Disposable income and consumption are directly related. So if one goes up so too the other will. Unless there are new expectations, such a deflation of economic growth or change in disposable income people are going to change their rate of consumption. Utherwise, the consuption will rremain the same.
How much of an effect would the $50 billion injection have? If the multiplier is 5 then $250. You seemed to have a good sense of non-income determinants.
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