Figure 23-3
-Refer to Figure 23-3. Suppose that government spending increases, shifting up the aggregate expenditure line. GDP increases from GDP₁ to GDP₂, and this amount is $400 billion. If the MPC is 0.75, then what is the distance between N and L or by how much did government spending change?

Question

Figure 23-3 Figure 23-3 -Refer to Figure 23-3. Suppose that government spending increases, shifting up the aggregate expenditure line. GDP increases from GDP<sub>1</sub> to GDP<sub>2</sub>, and this amount is $400 billion. If the MPC is 0.75, then what is the distance between N and L or by how much did government spending change? A) $10 billion B) $100 billion C) $200 billion D) $300 billion

Figure 23-3 -Refer to Figure 23-3. Suppose that government spending increases, shifting up the aggregate expenditure line. GDP increases from GDP<sub>1</sub> to GDP<sub>2</sub>, and this amount is $400 billion. If the MPC is 0.75, then what is the distance between N and L or by how much did government spending change? A) $10 billion B) $100 billion C) $200 billion D) $300 billion

-Refer to Figure 23-3. Suppose that government spending increases, shifting up the aggregate expenditure line. GDP increases from GDP₁ to GDP₂, and this amount is $400 billion. If the MPC is 0.75, then what is the distance between N and L or by how much did government spending change?

Quizplus · Accepted Answer

The multiplier effect is calculated as 1/(1-MPC), which is 1/(1-0.75) = 4. The change in GDP is $400 billion, so the change in government spending is $400 billion / 4 = $100 billion.

Figure 23-3 -Refer to Figure 23-3. Suppose That Government Spending Increases, Shifting