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kifflom [539]
3 years ago
12

The country of Micronesia is currently experiencing a recessionary gap. The size of the recessionary gap is $500 billion. If the

marginal propensity to consume is .8, how much will the government need to spend to get the economy to full employment? brainly
Business
1 answer:
anastassius [24]3 years ago
8 0

Answer:

The appropriate solution is "100 billion".

Explanation:

The given values are:

Recessionary gap (Total change),

= $500

Marginal propensity consume (MPC),

= 0.8

Now,

Multiplier will be:

= \frac{1}{1-MPC}

On putting the value of MPC, we get

= \frac{1}{1-0.8}

= 5

As we know,

⇒ Total \ change=Government \ spending's \ increase\times Multiplier

⇒ Government \ spending's \ increase=\frac{Total \ change}{Multiplier}

On substituting the values, we get

⇒                                                       =\frac{500}{5}

⇒                                                       =100 \ billion

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