Macroeconomics + Economy 2009 Update 18th Edition by Campbell McConnell, Sean Masaki Flynn,Stanley Brue

Exercise 9

KEY QUESTION What is the multiplier effect What relationship does the MPC bear to the size of the multiplier The MPS What will the multiplier be when the MPS is 0,.4,.6, and 1 What will it be when the MPC is 1,.90,.67,.50, and 0 How much of a change in GDP will result if firms increase their level of investment by $8 billion and the MPC is.80 If the MPC is.67