Question

The Italian government decides to stimulate the economy by sending checks worth $70 billion to Italian consumers If the government spending multiplier is 1.5, calculate the MPC to determine the final change in Italy is real GDP due to the transfer. Please give your answer as a whole number in billions of dollars

Answer 1

Answer:$35 Billion

Explanation:

Marginal propensity to consume means the raise in income of the consumer which the consumer is willing to pay for the goods and services. The proportional increase in income of the Italian people will increase their amount spent of goods. MPC differs based on the income of the consumers. Here the Italian government to increase economic activity checks have been send to the customers for spending.

The real GDP can be calculated as follows.

MPC = ($70 billion)(1.5) = $105 billion

GDP= $105 - $70 billion = $35 billion