(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
In this problem, you're going to explore the effects of government policies on GDP.
(Description)
The accompanying table shows how consumers' marginal propensities to consume in a particular economy are related to their level of income. Table has 2 columns - income range and marginal propensity to consume; and it has 5 rows. The following data is in the table: income range - 0 to 20000 dollars, 20001 to 40000 dollars, 40001 to 60000 dollars, 60001 to 80000 dollars, and above 80000 dollars. Marginal propensity to consume - 0.9, 0.8, 0.7, 0.6, and 0.5.
(Speaker)
In particular, you were asked to explore how fiscal policies impact different income groups. You can see the problem provides you with different measures of the MPC for each income group. The first problem asks you to determine the effect, or bang for the buck, of an increase in government purchases of goods and services.
(Description)
Suppose the government engages in increased purchases of goods and services. For each of the income groups in the table, what is the value of the multiplier - that is, what is the "bang for the buck" from each dollar the government spends on government purchases of goods and services in each income group? Additional column - Bang for the buck - is added to the table.
(Speaker)
In order to determine the bang for the buck of an increase in government spending on each income group, we must first calculate the correct multiplier for each income group. The multiplier for each income group is calculated using the same formula used in Chapter 26 - 1 divided by 1 minus the MPC. The lowest income group has the highest MPC at 0.9. Which means the multiplier is 1 divided by 1 minus 0.9 which equals 10.
(Description)
In the first row of the "bang for the buck" column: 1 divided by 1 minus MPC equals 1 divided by 1 minus 0.9 equals 10
(Speaker)
Continuing with the second group the multiplier is found by dividing 1 by 1 minus 0.8 which equals 5.
(Description)
In the second row of the "bang for the buck" column: 1 divided by 1 minus MPC equals 1 divided by 1 minus 0.8 equals 5.
(Speaker)
The multiplier for the final three income groups are 3.33, 2.5, and 2, respectively.
(Description)
Values of 3.33, 2.5, and 2 inserted in rows 3 to 5, respectively.