Suppose that the MPC is 0.7,there is no investment accelerator,and there are no crowding-out effects.If government expenditures increase by $30 billion,then aggregate demand
A)shifts rightward by $100 billion.
B)shifts rightward by $51 billion.
C)shifts rightward by $170 billion.
D)shifts rightward by $72.8 billion.

Question

Quizplus · Accepted Answer

The spending multiplier is calculated as 1/(1-MPC), which is 1/(1-0.7) = 3.33. Therefore, an increase in government expenditures by $30 billion will shift aggregate demand rightward by 3.33 * $30 billion = $100 billion.

Suppose That the MPC Is 0