If the MPC is 0.6 and government increases spending by $50 million, what will be the demand for goods and services generated by this increase?
A) $20 million
B) $30 million
C) $83.3 million
D) $125 million

Question

Quizplus · Accepted Answer

The demand for goods and services generated by the increase in government spending can be calculated using the multiplier effect formula: 1/(1-MPC) * increase in spending. Here, it's 1/(1-0.6) * $50 million = 2.5 * $50 million = $125 million.

If the MPC Is 0