Consider hypothetical closed economy

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Consider a hypothetical closed economy in which households spend $0.65 of each additional dollar they earn and save the remaining $0.35. The marginal propensity to consume (MPC) for this economy is? , and the multiplier for this economy is ?.

Suppose the government in this economy decides to decrease government purchases by $350 billion. The decrease in government purchases will lead to a decrease in income, generating an initial change in consumption equal to ? . This decreases income yet again, causing a second change in consumption equal to ? . The total change in demand resulting from the initial change in government spending is ? .

Reference no: EM131113489

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