question archive Suppose that the real GDP of a country is in equilibrium at $480 billion
Suppose that the real GDP of a country is in equilibrium at $480 billion
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Suppose that the real GDP of a country is in equilibrium at $480 billion. Now suppose that planned investment decreases by $4 billion, and that this decrease causes real GDP to shift to a new equilibrium level of $470 billion Instructions: Round your answers to 1 decimal place
a. What is the spending multiplier for this country?
b. What is the marginal propensity to save (MPS) for this country?
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Answer
a)
Spending multiplier=change in GDP/change in investment
=10/4=2.5
The spending multiplier is 2.5
b)
Marginal propensity to save=1/multiplier
=1/2.5
=0.4
The MPS is 0.4
