ECN 150: Assignment #3
ECN 150: Assignment #3 ECN 150
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This 2 page Bundle was uploaded by Alexis Ibarra on Wednesday April 6, 2016. The Bundle belongs to ECN 150 at La Salle University taught by Francis Thomas Mallon in Summer 2015. Since its upload, it has received 36 views. For similar materials see Macroeconomics in Economcs at La Salle University.
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Date Created: 04/06/16
Alexis Ibarra Professor Mallon ECN 150-02 8 April 2016 Graded Assignment #3 1. Calculate the MPC and MPS from the table below: INCOME CONSUMPTION SAVINGS 10000 9000 1000 11000 9750 1250 12000 10500 1500 13000 11250 1750 14000 12000 2000 Change∈consumption 3000 The MPC is calculated by Change∈Income = 4000 =.75 Change∈savings 1000 The MPS is calculated by = =.25 Change∈income 4000 The MPC + MPS = 1 so once the MPC was calculated, the MPS could have also been calculated by solving 1-.75 = .25. 2. Calculate the spending multiplier based on your answer to question 1. The spending multiplier can be calculated by 1 sothespendingmultiplier based ontheasnwer¿question1is1 =4. mps = .25 3. Explain in your own words what this spending multiplier represents. The spending multiplier is an idea that represents the multiple that the GDP will increase by if government decided to increase their spending. Multiplying the multiplier by the infusion yields the change in GDP due to infusion. In other words, when businesses increase their output, they hire more workers. Since these people now have more work, they have more money. Since they have more money, they spend more. Since they spend more, businesses make more money. Then businesses spend more by making more output (hiring more workers). This cycle of spending between businesses and consumers causes both consumers and businesses to flourish. The numerical value to this theory is explained by the spending multiplier.
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