Question

In an economy in which the multiplier has a value of 3, the price level has decreased from 115 to 110. As a consequence, there has been a movement along the aggregate demand curve from $S18$trillion in real GDP to $18.9$ trillion in real GDP.

a. What is the marginal propensity to save?

b. What was the amount of the change in planned expenditures generated by the decline in the price level?

Short answer

As a result, anticipated spending will increase in lockstep with real GDP growth, bringing total spending to $\mathbf{0}\mathbf{.}\mathbf{9}$The value of the dollar has plummeted by a trillion dollars as a result of the price reduction.

Step-by-step solution

IntroductionStep 1:  Economy's autonomous 

a)

The relationship between the change in autonomous real expenditure in the economy and the level of real GDP.

The amount saved out of a person's total income is known as the marginal propensity to save. The multiplier formula listed below will be used to compute the marginal propensity to save.

Multiplier$=\frac{1}{\text{MPS}}$

Because the multiplier is set to three, MPS is calculated as follows:

$3$=$\frac{1}{\mathrm{MPS}}$

M P S $=\frac{1}{3}$

$=0.34$

As a result, the value of the$MPS$is$0.34$

The economy's pricing 

b)

The price level in the economy has reduced, which will increase people's purchasing power in the economy. The growth in AD coincides with the increase in GDP from 18 trillion to trillion dollars.