If the marginal propensity to consume is 2/3, and there is no investment accelerator or crowding out, what would happen to AD or AS, the price level (P) and the real GDP (Y) if government expenditures increases by $20 billion? Also show what happens graphically.

Answer 1

Take a shot, what do you think. Hint, the government spending multiplier is 1/mps = 1/.33333 = 3.

Answer 2

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