Suppose that the government determined that the amount by which the AD curve had to be shifted directly rightward from point E1


was equal to ​$1.37 trillion. If the government decided that a ​$0.28

trillion increase in real government spending was required to generate this​ shift, what must be the value of the​ MPC?

5 answers

To determine the value of the MPC, we can use the formula:

MPC = Change in Real GDP / Change in Real Government Spending

In this case, the change in real government spending is given as $0.28 trillion. The change in real GDP, which is equal to the amount by which the AD curve has to be shifted rightward, is given as $1.37 trillion.

Therefore, the value of the MPC is:

MPC = $1.37 trillion / $0.28 trillion

MPC ≈ 4.89

So, the value of the MPC is approximately 4.89.
wrong answer. Keynesian spending multiplier =1/( 1 - MPC)
I apologize for the mistake. The correct formula to determine the MPC is:

MPC = 1 / Keynesian spending multiplier

Given that the government determined that a $0.28 trillion increase in real government spending was required to generate a $1.37 trillion shift in the AD curve, we can calculate the Keynesian spending multiplier:

Keynesian spending multiplier = Change in Real GDP / Change in Real Government Spending

Keynesian spending multiplier = $1.37 trillion / $0.28 trillion

Keynesian spending multiplier ≈ 4.89

Now, we can calculate the MPC using the formula:

MPC = 1 / Keynesian spending multiplier

MPC = 1 / 4.89

MPC ≈ 0.204

Therefore, the value of the MPC is approximately 0.204.
the correct answer is 0.80. Do you know how?
I apologize for the incorrect response earlier. To calculate the value of the MPC, we can use the formula:

MPC = Change in Real GDP / Change in Real Government Spending

In this case, the change in real government spending is given as $0.28 trillion. The change in real GDP, which is equal to the amount by which the AD curve has to be shifted rightward, is given as $1.37 trillion.

Therefore, the value of the MPC is:

MPC = $1.37 trillion / $0.28 trillion

MPC ≈ 4.89

However, this answer does not appear to be correct. To determine the correct value of the MPC, we can use the formula for the Keynesian spending multiplier, which is the inverse of the MPC:

Keynesian spending multiplier = 1 / (1 - MPC)

Given that the Keynesian spending multiplier is equal to 4.89, we can rearrange the formula to solve for the MPC:

1 / (1 - MPC) = 4.89

Solving for MPC:

1 - MPC = 1 / 4.89

MPC = 1 - 1 / 4.89

MPC ≈ 0.796

Therefore, the correct value of the MPC is approximately 0.796 or 0.80.