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18-12-2019
Business

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suppose that there are no crowding out effects and the mpc is .9. by how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion

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jalalpms256 jalalpms256

19-12-2019

Answer: The answer is $ 1 billion.

Explanation:

MPC stands for the marginal propensity to consume.

If MPC is 9 it implies that the multiplier is 10 i.e 1/(1-0.9). The rise in aggregate demand is equal to multiplier times change in government expenditures so to boost aggregate demand by 10 billion dollar government has to increase expenditure by Dollar 1 billion.

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