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 $200 billion. If the MPC is 0.8, 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 $200 billion. If the MPC is 0.8, then what is the distance between N and L or by how much did government spending change? A) $16 billion B) $40 billion C) $200 billion D) $1,000 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 $200 billion. If the MPC is 0.8, then what is the distance between N and L or by how much did government spending change? A) $16 billion B) $40 billion C) $200 billion D) $1,000 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 $200 billion. If the MPC is 0.8, then what is the distance between N and L or by how much did government spending change?

Quizplus · Accepted Answer

The change in GDP is determined by the spending multiplier, which is 1/(1-MPC). With an MPC of 0.8, the multiplier is 5. Therefore, the change in government spending is $200 billion / 5 = $40 billion.

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