Question

The American Recovery and Reinvestment Act introduced a large amount of government spending into the economy—$789 billion! Suppose the marginal propensity to consume in the United States is 0.75. How much would the program increase total spending in the economy?
$____________ billion (NOTE: You may round to the nearest dollar.)

Answer 1

Answer:

$2254

Explanation:

The Government spending multiplier is given by the formular =1/(-MPC)

=1/(1-0.65)

=2.85714286

Now the increase in total spending =increase in spending*spending multiplier

=789*2.85714286

=2254.28572

It will increase total spending by $2254