Illustrate what would they estimate the marginal propensity

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Reference no: EM1359042

Suppose economists observe that an increase in government spending of $10 billion raises the total demand for goods and services by $30 billion.

a. If these economists ignore the possibility of crowding out, what would they estimate the marginal propensity to consume (MPC) to be?

b. Now suppose the economists allow for crowding out. Would 'their new estimate of the MPC be larger or smaller than their initial one?

Reference no: EM1359042

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