Question

If korean exports to the united states decline by $15 billion, by how much will cumulative korean spending drop if their mpc is 0.75?

Answer 1

Given:
Change in exports: 15 billion
MPC = 0.75

MPC = Change in Consumption / Change in Disposable income

MPS stands for Marginal Propensity to Consume while MPS stands for Marginal Propensity to Save.

MPC + MPS = 1
MPC = 1 - MPS
MPS = 1 - MPC

Spending Multiplier = 1/MPS

Since MPC = 0.75 then MPS = 0.25

Spending Multiplier = 1/0.25 = 4

Change in Export * Spending Multiplier

15 billion * 4 = 60 billion

The cumulative Korean spending will drop by 60 billion.