Question

2. Suppose that MPC = 0.9 and MP to import = 0.10 and an autonomous increase in Exports = $10 . Calculate :
a. The level of the multiplier
b. The change in the level of imports
( Hint : k = 1 / 1- MPC + MPM )

Answer 1

Answer to Question #90224, Economics/Macroeconomics

(a) $K = 1/1 - (MPC - MPM)$

$$K = 1/1 - (0.9 - 0.1)$$ $$K = \frac{1}{0.2}$$ $$= \mathbf{5}$$

(b) $\Delta Y = k(\Delta X) = 5 * 10 = \$50$

$$\Delta M = MPI(\Delta Y) = 0.1 * 50$$ $$= \$5$$

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