Question

our economists estimate that citizens in our country have an mpc of 0.75. To increase GDP by $800 how much should we increase government spending

Answer 1

Answer: $200

Explanation:

From the information given, since the MPC is 0.75 and the change in GDP is $800, the change in the government spending will then be:

$800 = 1/(1 - 0.75) × ∆G

$800 = 1/0.25 × ∆G

$800 = 4 × ∆G

∆G = $800/4

∆G = $200

The government spending will be increased by $200