Answer Happy

Scenario 34-2. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. Consumption spending is $7,040 when income is $8,500. . Refer to Scenario 34-2 to answer the following questions. (a). Considering that the marginal propensity to consume (MPC) is the change in consumption divided by the change in income, calculate the MPC for this economy using the information above. Show all working (round your answer to two decimal places). [8 points] (b). Given the MPC you calculated in part (a), calculate the multiplier for this economy. Show all working (round your answer to two decimal places). [4 points] (c). Suppose the government of this economy increases its spending by $200. What would the increase in aggregate demand be? Show all working. [6 points] (d). What if instead of $200, the government of this economy increases its spending by $500. What would the increase in aggregate demand be? Show all working. [6 points] (e). Explain the crowding out effect. How can an increase in government spending lead to a fall in aggregate demand? [1 point]