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Radda [10]
4 years ago
15

Assume that the full-employment level of output is $2,000 and the price level associated with full-employment output is 100. Als

o assume that the economy's current level of output is $1,900 and, at the price level of 100, current aggregate demand is $1,850. If the government moves the economy back to the full-employment level of output by increasing government purchases by $30, then the MPC equals:a. 0.8.b. 0.75.c. 0.6.d. 0.5.
Business
1 answer:
olya-2409 [2.1K]4 years ago
6 0

Answer:

The correct answer is option a.

Explanation:

The full-employment level of output is $2,000.

The current level of output is $1,900.  

The current aggregate demand is $1,850.  

There is a need to increase the aggregate demand by $150 to reach full employment level.  

The government increases purchasing by $30.  

Increase\ in\ income\ =\ Change\ in\ government\ spending\ \times\ spending\ multiplier

\$ 150\ =\ \$ 30\ \times\ \frac{1}{1-MPC}

\$5 = \frac{1}{1-MPC}

1 - MPC = \frac{1}{5}

MPC = 1 - 0.2

MPC = 0.8

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