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March 29, 2024, 12:36:57 am

Author Topic: Economics - Changes in National Income and Investment Q  (Read 2520 times)  Share 

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gusm03

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Economics - Changes in National Income and Investment Q
« on: July 11, 2021, 04:01:10 pm »
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Can someone help me out, please?
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zbolland

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Re: Economics - Changes in National Income and Investment Q
« Reply #1 on: July 16, 2021, 10:55:51 am »
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For this equation, you need to become familiar with the MPC/MPS and change in national income formulas, as well as the simple multiplier.

To calculate the MPS, it is the (change in savings between 2 years)/(change in national income between 2 years) = 100/500 = 0.2

Therefore, we can calculate the simple multiplier, which is k = 1/MPS --> so k = 1/0.2 = 5

Since the government wishes to raise the level of national Y by $1000, we need to apply the change in the national income formula, which is, in this case: $1000 = 5 x (what we need to find)

Divide 1000 by 5 and you'll realise that the government will need to increase investment by $200.

The answer should be B.

These questions are very common, so it's definitely worth revising others if you are still confused. Hope that helps.
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