Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.The marginal propensity to spend on national income,z,is
A)0.655.
B)0.760.
C)0.773.
D)0.840.
E)0.920.

Question

Quizplus · Accepted Answer

The marginal propensity to spend (z) is calculated as the sum of the marginal propensity to consume (MPC) and the marginal propensity to import (MPM) subtracted from 1. Here, MPC is 0.84 and MPM is 0.08, so z = 0.84 - 0.08 = 0.76.

Consider a Simple Macro Model with a Constant Price Level