Problem
Suppose, the marginal propensity to consume (mpc) of the United States is 0.65. increment Y equals fraction numerator 1 over denominator 1 minus m p c end fraction increment G semicolon space m p c plus m p s equals 1 semicolon space multiplier space effect equals fraction numerator 1 over denominator 1 minus m p c end fraction equals fraction numerator 1 over denominator m p s end fraction
i. Calculate the marginal propensity to save (mps) and the multiplier effect.
ii. Suppose the US government has increased spending by 5 million USD. Could you find out the change in US income level?
iii. Would you support the expansionary fiscal policy (i.e., a combination of increased federal spending and decreased taxes)? Why or Why not?