(Simple Spending Multiplier) For each of the following values for the MPC (marginal propensity to
consume), determine the size of the simple spending multiplier and the total change in real GDP
demanded following a $10 billion decrease in spending:
a. MPC = 0.9
b. MPC = 0.75
c. MPC = 0.6
2 answers
Assume an economy is in recession with a MPC of .75 and there is a GDP gap of $100 billion. How much must government spending increase to eliminate the gap? Instead of increasing govt. spending by the amount that you calculate, what would be the effect of the govt. cutting taxes by this amount?
200 +900
1 answer