NVCC Marginal Propensity to Consume and Economics Questions
Description
10.1 If the Marginal Propensity to Consume (MPC) is .90, estimate the total (multiplied) effect of government purchases/spending of $100B in the economy in terms of its aggregate expenditure (Hint: Multiplier = 1 / 1 MPC).
Calculate the net cumulative change in the aggregate expenditure if taxes were cut by $200 billion and MPC is estimated to be .75.
What if government expenditure was increased by $200 billion?
(Hint: Total change in expenditure = multiplier x new expenditure or spending injection)
10.2 Explain why a high level of government debt is bad for the economy?
10.3 Why automatic stabilizers help to smooth out the effects of cyclic boom and bust cycles on the economy?
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