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ECON, Marginal Propensity to Consume (MPC)

If the marginal propensity to consume (MPC) is 0.87 what would the impact on GDP of increase of government spending of 275,000,000.00 stimulate in the first year what is the net stimulus?

Government spending multiplier = 1/ (1-MPC)

= 1/ (1-0.87)

= 7.692

Net stimulus = spending multiplier x change in government spending.

= 7.692 * 275,000,000

= 2114.75 millions

Kim has taken a big step toward saving for her house she has accumulated 56,750.00 for her down payment Kim began with an initial investment of 25,000.00 she has been investing for 9 years what Kim holding period rate of return? What is her average annual rate of return?

Rate of return= (56,750- 25000)/9 years

= 31750/9

= 3527.77 per year

Average annual rate of return

V= A (1+ r/100)n

56,750= 25,000(1+r/100)9

2.27= (1+r/100)9

9√2.27= 9√ (1+r/100)9

1.095= 1+r/100


r= 0.095* 100

r= 9.5%

Average annual rate of return= 9.5%

The fed wants to reduce the money supply they decide to increase the reserve requirement from 10% to 11.75% what is the percentage change of this increase

Percentage change of this increase= 11.75%- 10%

= 1.75%

Consumer credit union is nationally chartered bank that holds 6% of its deposits in an excess reserve if the current reserve requirement is 9.5% for CCU what is the effect of 62,000.00 deposits in relation to the money multiplier?

Money multiplier = 1/ reserve ratio

= 1/9.5

= 0.105

Consumer Credit Union will have to hold 9.5% of 62,000.00 as compared to its deposit holding rate of 6%.

Thus the amount of money held by the Consumer Credit Union will increase.

That is, 9.5% * 62,000 = 5890

6% * 62, 000 = 3600

The Consumer Credit Union will increase its reserve by 2290


Dwivedi, D. N. (2005). Macroeconomics: Theory and policy. (2nd ed., p. 73). New York: Tata McGraw-Hill Publishing Co. Ltd.

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