10. Crowding out effect Suppose economists observe that an increase in government spending of $13 billion raises the total demand for goods and services by $52 billion. If these economists ignore the possibility of crowding out, they would estimate the marginal propensity to consume (MPC) to be . Now suppose the economists allow for crowding out. Their new estimate of the MPC would be than their initial one.

Explanation:

Effect of crowding out:

The crowding out phenomena describes the economic phenomena in which an increase in government public spending leads to reduced or perhaps may eliminate of private investment.

Multiplier:

The multiplier represents the ratio of income to investment change.

Given that:

$13 billion increase in government spending will lead to a $52 billion

The rise in demand for goods & service will be the value of multiplier which is

= 52/13

= 4

To determine the multiplier using the formula:

Multiplier = 1 /( 1- MPC)

4 = 1/(1 - MPC)

4 (1 - MPC) = 1

(1- MPC) = 1/4

-MPC = 0.25 - 1

MPC = 0.75

Marginal propensity to consume = 0.75

answer; /// i believe the correct answer to the above question is(200 pounds); /good luck

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.