increase in spending, multiplier

[Spank Doggy Dog]

additional increase was 2020?

[zeus1233]

Yes; 200*.91/.09

[Sellout]

I put D, which I believe is 2020.

[JohnK]

Originally Posted by zeus1233

Yes; 200*.91/.09

Agreed. I'm glad I did a problem similar to this recently, because I was almost tricked into just doing 200/.09


John

[zeus1233]

Yeah, the trick is that the initial consumption isn't the tax cut of 200, because they will save 9% of it. It was in an old exam; I missed it that time.

[Wannabe Actuary]

I think I botched this one....this sitting may be headed down the drain

[vegi-saurus]

Yeap...it's 200/.09 - 200 = 2022.

[Animal]

I was debating between 2222 and 2022. I remembered the tax multiplier was (mpc)/(1-mpc), but wasn't sure if it applied here. Anyway, I chose 2222. Looks like I got it wrong, shoot.

[Taks]

I remember the past problem asked for additional spending generated, so the first spending was understandably the percentage of spending times the tax cut.

For this case, however, what was asked was the additional output. Now I know savings in NIPA is not part of output but of income, but the two are equivalent. So whatever increases one, increases the other. Now a tax cut of 200 will therefore generate additional income of 200/0.09. So the additional output generated would be the same. That is, 2222.

Just my analysis.