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if the marginal propensity to save is 0.4 (or 40%) and the government plans to spend $4,000 in the economy, then what will be the change in national income as a whole?

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Final answer:

The change in national income resulting from a government spending of $4,000, given the marginal propensity to save is 0.4, is calculated using the multiplier effect, which in this case results in a $10,000 increase in the national income.

Step-by-step explanation:

The student's question pertains to the marginal propensity to save (MPS) and its effect on national income, which is a topic under economics in the field of business. If the marginal propensity to save is 0.4, the complementary marginal propensity to consume (MPC) would be 0.6 (since MPS + MPC = 1). The government expenditure of $4,000 would act as an initial injection into the economy.

To calculate the total change in national income as a result of this government spending, we use the multiplier effect. The multiplier (k) is calculated by 1 / (1 - MPC), which in this case is 1 / (1 - 0.6) = 2.5. Therefore, the total change in national income would be the government spending multiplied by the multiplier, which is $4,000 * 2.5 = $10,000.

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