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In order to financially stimulate the nation, the Federal government injected $900 billion dollars into the economy. However, the results were less than spectacular. One reason could have been a failure to understand the marginal propensity to consume. Assume the marginal propensity to consume (MPC) was only 0.4. How much of that $900 billion went to increased consumption? Where did the rest of the money go?
Increased consumption:______
Where did the rest go?______
Using MPC = 0.4, what is the spending multiplier (the actual numerical value please):________
What was the implied change in income as a result of the stimulus package?________
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Suppose Harrod-Damar model with fixed capital-output ratio. Suppose that the country saves 20 percent of its income and has a capital or output ratio of 4.
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