Question

Assume the MPC is 0.80. If the economy experiences the full benefit of the multiplier, the change in total spending for the economy due to a $200 billion government spending increase would be:

Answer 1

Answer:

Change in total spending will be $1000

Explanation:

We have given MPC as MPC = 0.8

We have to find Change in total spending for the economy due to a $200 billion government spending increase

First we have to find the multiplier

Multiplier is given by

$multiplier=\frac{1}{1-MPC}=\frac{1}{1-0.8}=\frac{1}{0.2}=5$

Now change in total spending = $200×5 = $1000

So change in total spending will be $1000