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GuDViN [60]
2 years ago
10

What is the eventual effect on real GDP if the government increases its purchases of goods and services by $50,000? Assume the m

arginal propensity to consume (MPC) is 0.75. $ What is the eventual effect on real GDP if the government, instead of changing its spending, increases transfers by $50,000? Assume the MPC has not changed. $ An increase in government transfers or taxes, as opposed to an increase in government purchases of goods and services, will result in
Business
1 answer:
Finger [1]2 years ago
3 0

Answer:

a. The real GDP increases by $200,000.

a. The real GDP increases by $150,000.

Explanation:

a. What is the eventual effect on real GDP if the government increases its purchases of goods and services by $50,000?

Eventual effect on real GDP = Amount of increase in government spending * (1 /(1 - MPC)) = $50,000 * (1 / (1 – 0.75)) = $200,000

Therefore, the real GDP increases by $200,000.

a. What is the eventual effect on real GDP if the government, instead of changing its spending, increases transfers by $50,000?

Eventual effect on real GDP = (Amount of increase in government transfers * (1 /(1 - MPC))) - Amount of increase in government transfers = ($50,000 * (1 / (1 – 0.75))) - $50,000 = $150,000

Therefore, the real GDP increases by $150,000.

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