In a simple economy in which prices are constant and with no income taxes or imports, the marginal propensity to save is 0.2. If exports increase $50, what impact will that have on aggregate expenditure?

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Quizplus · Accepted Answer

An increase in exports would lead to an increase in aggregate expenditure. The size of the increase in aggregate expenditure would be determined by the marginal propensity to spend, which is equal to 1 minus the marginal propensity to save. In this case, the marginal propensity to save is 0.2, so the marginal propensity to spend is 1 - 0.2 = 0.8. This means that for every increase in exports of $50, there would be an increase in aggregate expenditure of $50 x 0.8 = $40. Therefore, an increase in exports of $50 would lead to an increase in aggregate expenditure of $40, or a total increase of $50 + $40 = $90.

In a Simple Economy in Which Prices Are Constant and with No