1. The size of the change in government purchases of goods and services that resulted in the increase in real GDP of $200 million was $50 million.
2. The value of the multiplier that would result in an increase in real GDP of $200 million is 10.
3. The marginal propensity to consume that would lead to a multiplier of 10 is 0.8.
A change in government purchases of goods and services results in a change in real GDP equal to $200 million. Assuming the absence of taxes, international trade, and changes in aggregate price level, answer the following questions.
• Suppose that the multiplier is 4. What was the size of the change in government purchases of goods and services that resulted in the increase in real GDP of $200 million?
• Now suppose that the change in government purchases of goods and services was $20 million. What value of the multiplier would result in an increase in real GDP of $200 million?
• Given the value of the multiplier you calculated in part (2), what marginal propensity to consume have led to that value of multiplier?
1 answer
1 answer