ECON: MACRO4
4th Edition
ISBN: 9781305436862
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 9, Problem 5.10PA
To determine
The increase in the government expenditure required to increase the real GDP by $1 trillion with the given MPC.
Concept Introduction:
Marginal Propensity to Consume (MPC) - It refers to the fraction of the disposable income which is spent as induced consumption or personal consumption spending consequent upon an increase in the personal income of the consumers.
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QUESTION 40
Assume the economy is in a recession and real GDP is below its potential level of output. The MPC is .75, and the government increases spending by $100billion. How much will aggregate expenditures rise?
A) $100 billion
B) $75billion
C) $400billion
D)$133 billion
3@
An economy has neither imports nor income taxes. The MPC is 0.75 and the real GDP is $120 billion. The government increases expenditures by $4
billion.
The multiplier is _____ and the change in real GDP from the increase in government expenditures is _____ billion.
1. Suppose that the U.S. government increases its expenditure on highways and bridges by $100 billion. Explain the effect that this expenditure would have on aggregate demand and real GDP.
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