Math / Data & Statistics

QuestionIf consumers spend 80 cents out of every extra dollar received, the
Multiple Choice
multiplier is 5.
marginal propensity to save is 0.80.
marginal propensity to consume is 0.20.
multiplier is 20.

Studdy Solution

STEP 1

What is this asking? If people spend $\$0.80$ of every extra dollar they get, what's the multiplier effect on the economy, and what are the marginal propensities to consume (MPC) and save (MPS)? Watch out! Don't mix up spending and saving!
They add up to the total change in income.

STEP 2

1. Define Marginal Propensity to Consume (MPC)
2. Define Marginal Propensity to Save (MPS)
3. Calculate the Multiplier

STEP 3

The problem tells us that consumers spend $\$0.80$ of every extra dollar.
This is the MPC, the proportion of extra income that goes to consumption.
So, MPC $= \frac{\text{$\$0.80$ spent}}{\text{$\$1.00$ earned}} = \textbf{0.80}$ .

STEP 4

If people spend $\$0.80$ of every extra dollar, they must be saving the other $\$0.20$ .
This is the MPS, the proportion of extra income that's saved.
So, MPS $= \frac{\text{$\$0.20$ saved}}{\text{$\$1.00$ earned}} = \textbf{0.20}$ .

STEP 5

Notice that MPC $+$ MPS $= 0.80 + 0.20 = 1.00$ .
This always has to be true!
All extra income must either be spent or saved.

STEP 6

The spending multiplier shows how an initial change in spending leads to a larger change in overall income.
It's calculated as: $\text{Multiplier} = \frac{1}{\text{MPS}}$

STEP 7

We know that MPS $= \textbf{0.20}$ , so we can plug that in: $\text{Multiplier} = \frac{1}{0.20} = \frac{1}{\frac{20}{100}} = \frac{1}{1} \cdot \frac{100}{20} = \frac{100}{20} = \textbf{5}$

STEP 8

The MPC is 0.80, the MPS is 0.20, and the multiplier is 5.
So the correct answer is that the multiplier is 5.

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QuestionIf consumers spend 80 cents out of every extra dollar received, the
Multiple Choice
multiplier is 5.
marginal propensity to save is 0.80.
marginal propensity to consume is 0.20.
multiplier is 20.

Studdy Solution

STEP 1

What is this asking? If people spend $\$0.80$ of every extra dollar they get, what's the multiplier effect on the economy, and what are the marginal propensities to consume (MPC) and save (MPS)? Watch out! Don't mix up spending and saving!
They add up to the total change in income.

STEP 2

1. Define Marginal Propensity to Consume (MPC)
2. Define Marginal Propensity to Save (MPS)
3. Calculate the Multiplier

STEP 3

The problem tells us that consumers spend $\$0.80$ of every extra dollar.
This is the MPC, the proportion of extra income that goes to consumption.
So, MPC $= \frac{\text{\(\$0.80\) spent}}{\text{\(\$1.00\) earned}} = \textbf{0.80}$ .

STEP 4

If people spend $\$0.80$ of every extra dollar, they must be saving the other $\$0.20$ .
This is the MPS, the proportion of extra income that's saved.
So, MPS $= \frac{\text{\(\$0.20\) saved}}{\text{\(\$1.00\) earned}} = \textbf{0.20}$ .

STEP 5

Notice that MPC $+$ MPS $= 0.80 + 0.20 = 1.00$ .
This always has to be true!
All extra income must either be spent or saved.

STEP 6

The spending multiplier shows how an initial change in spending leads to a larger change in overall income.
It's calculated as: $\text{Multiplier} = \frac{1}{\text{MPS}}$

STEP 7

We know that MPS $= \textbf{0.20}$ , so we can plug that in: $\text{Multiplier} = \frac{1}{0.20} = \frac{1}{\frac{20}{100}} = \frac{1}{1} \cdot \frac{100}{20} = \frac{100}{20} = \textbf{5}$

STEP 8

The MPC is 0.80, the MPS is 0.20, and the multiplier is 5.
So the correct answer is that the multiplier is 5.

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QuestionIf consumers spend 80 cents out of every extra dollar received, theMultiple Choicemultiplier is 5.marginal propensity to save is 0.80.marginal propensity to consume is 0.20.multiplier is 20.

Studdy Solution

STEP 1

What is this asking? If people spend $0.80\$0.80$0.80 of every extra dollar they get, what's the multiplier effect on the economy, and what are the *marginal propensities* to consume (MPC) and save (MPS)? Watch out! Don't mix up *spending* and *saving*!They add up to the total change in income.

STEP 2

1. Define Marginal Propensity to Consume (MPC)2. Define Marginal Propensity to Save (MPS)3. Calculate the Multiplier

STEP 3

STEP 4

STEP 5

Notice that MPC ++ + MPS =0.80+0.20=1.00= 0.80 + 0.20 = 1.00=0.80+0.20=1.00.This *always* has to be true!All extra income must either be spent or saved.

STEP 6

The *spending multiplier* shows how an initial change in spending leads to a larger change in overall income.It's calculated as: Multiplier=1MPS \text{Multiplier} = \frac{1}{\text{MPS}} Multiplier=MPS1​

STEP 7

We know that MPS =0.20= \textbf{0.20}=0.20, so we can plug that in: Multiplier=10.20=120100=11⋅10020=10020=5 \text{Multiplier} = \frac{1}{0.20} = \frac{1}{\frac{20}{100}} = \frac{1}{1} \cdot \frac{100}{20} = \frac{100}{20} = \textbf{5} Multiplier=0.201​=10020​1​=11​⋅20100​=20100​=5

STEP 8

The **MPC is 0.80**, the **MPS is 0.20**, and the **multiplier is 5**.So the correct answer is that the multiplier is 5.

Get Studdy

Studdy solves anything!

Start learning now

Download Studdy AI Tutor now. Learn with ease and get all help you need to be successful at school.

QuestionIf consumers spend 80 cents out of every extra dollar received, the
Multiple Choice
multiplier is 5.
marginal propensity to save is 0.80.
marginal propensity to consume is 0.20.
multiplier is 20.

What is this asking? If people spend $\$0.80$ of every extra dollar they get, what's the multiplier effect on the economy, and what are the marginal propensities to consume (MPC) and save (MPS)? Watch out! Don't mix up spending and saving!
They add up to the total change in income.

1. Define Marginal Propensity to Consume (MPC)
2. Define Marginal Propensity to Save (MPS)
3. Calculate the Multiplier

Notice that MPC $+$ MPS $= 0.80 + 0.20 = 1.00$ .
This always has to be true!
All extra income must either be spent or saved.

The spending multiplier shows how an initial change in spending leads to a larger change in overall income.
It's calculated as: $\text{Multiplier} = \frac{1}{\text{MPS}}$

We know that MPS $= \textbf{0.20}$ , so we can plug that in: $\text{Multiplier} = \frac{1}{0.20} = \frac{1}{\frac{20}{100}} = \frac{1}{1} \cdot \frac{100}{20} = \frac{100}{20} = \textbf{5}$

The MPC is 0.80, the MPS is 0.20, and the multiplier is 5.
So the correct answer is that the multiplier is 5.