What is the bang for the buck from each dollar

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Reference no: EM13222974

The accompanying table show how consumer's marginal propensities to consume in a particular economy are related to their level of income.

Income Range Marginal propensity to consume
$0 - $20, 000 0.9
$20, 001 - $40, 000 0.8
$40, 001 - $60, 001 0.7
$60, 001 - $80, 000 0.6
Above $80, 000 0.5

a. suppose the government engages in increased purchases of goods and services. For each of the income groups in the accompanying table, what is the value of the multiplier that is, what is the "bang for the buck" from each dollar the government spends on government purchases of goods and services in each income group?

b. if the government needed to close a recessionary or inflationary gap, at which group should it primarily aim its fiscal policy of changes in government purchases of goods and services.

Reference no: EM13222974

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