Question

1.      What is the relationship between the mpc, the mpc_d and the mpw?

 

2.      At national income of $20B. how much would be consumed if the MPC is ¾?

If the MPM is 60%, how much is consumed domestically

Answer 1

1. The formula for the simple multiplier is 1/MPS or 1/(1-MPC)

MPC + MPS = 1

the marginal propensity to save (mps) plus the additional revenue going to the government - the marginal tax rate (mtr) - plus the amount going abroad - the marginal propensity to import (mpm).

Summing up all the withdrawals, we get the marginal propensity to withdraw (mpw)

2.

$0.75\times20=15$ would be consumed 

$0.6\times20=12$

20-12=8 consumed domestically