Problem

We have the following information on the levels of income, consumption and planned investment for a country:
\begin{tabular}{ccc}
\hline \begin{tabular}{c}
Aggregate \\
Income/Output
\end{tabular} & Consumption & \begin{tabular}{c}
Planned \\
Investment
\end{tabular} \\
\hline 2000 & 2,000 & 500 \\
2500 & 2,375 & 500 \\
3000 & 2,750 & 500 \\
3500 & 3,125 & 500 \\
4000 & 3,500 & 500 \\
4500 & 3,875 & 500 \\
5000 & 4,250 & 500 \\
5500 & 4,625 & 500 \\
\hline
\end{tabular}

For this country, the value of the Investment Multiplier is $\square$. (Enter your response as an integer.)

Answer

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Answer

Final Answer: The value of the Investment Multiplier for this country is \(\boxed{4}\).

Steps

Step 1 :We are given the levels of income, consumption and planned investment for a country. The data is as follows: \n\n\begin{tabular}{ccc}\n\hline \begin{tabular}{c} \nAggregate \\nIncome/Output\n\end{tabular} & Consumption & \begin{tabular}{c} \nPlanned \\nInvestment\n\end{tabular} \\n\hline 2000 & 2,000 & 500 \\n2500 & 2,375 & 500 \\n3000 & 2,750 & 500 \\n3500 & 3,125 & 500 \\n4000 & 3,500 & 500 \\n4500 & 3,875 & 500 \\n5000 & 4,250 & 500 \\n5500 & 4,625 & 500 \\n\hline\n\end{tabular}

Step 2 :The investment multiplier is a concept in Keynesian economics that measures the impact of a change in investment on total income. It is calculated as the reciprocal of the marginal propensity to save (MPS). The MPS can be calculated from the marginal propensity to consume (MPC), which is the change in consumption divided by the change in income.

Step 3 :First, we calculate the MPC from the given data. The MPC is the change in consumption divided by the change in income. From the data, we can see that the change in consumption is consistently 375 and the change in income is consistently 500. Therefore, the MPC is \( \frac{375}{500} = 0.75 \).

Step 4 :Next, we calculate the MPS. The MPS is 1 minus the MPC. Therefore, the MPS is \( 1 - 0.75 = 0.25 \).

Step 5 :Finally, we calculate the investment multiplier. The investment multiplier is the reciprocal of the MPS. Therefore, the investment multiplier is \( \frac{1}{0.25} = 4 \).

Step 6 :Final Answer: The value of the Investment Multiplier for this country is \(\boxed{4}\).

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