Question 1: $20 million of new investment has been added to the American economy, the current MPS (marginal propensity to save) is 0.40, and tax rate (t) is 0.12. By how much will aggregate spending and income increase as a result of the $20 million increase in investment spending.
A small country X with agriculture as the main driver of its economy has been hit by a drought. The households expect their wealth to be negatively impacted in the medium term.
Question 2: Use the concept of precautionary savings to explain how the households of X could respond to these negative expectations about the impact on their future wealth?
Question 3: How would the household's behaviour impact the aggregate demand curve for X?