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Increase in government spending

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1. Assume that Carl and Wanda each make $40,000. Each was given a raise of $4,000. Carl's spending increased from $40,000 to $43,000. Wanda's savings increased from $1,000 to $2,000. 

i. Carl lives in the Macro Islands. What is Carl's MPC?

ii. Wanda lives in the Micro Islands. What is Wanda's MPS?

2. When businesses in the Macro Islands increased investment by $30 million to attract tourists, GDP increased by $300 million. Calculate the MPC in the Macro Islands?

3. Assume taxes increase by $300 and government spending increases by $300. The marginal propensity to consume is 0.75. Calculate the total change GDP.

4. If equilibrium output rises by a total of $400 billion in response to an increase in government spending of $80 billion, what is the marginal propensity to consume?

Reference no: EM131695579

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