If government spending increased by $200 billion and the MPC within the economy was 0.9, what would be the total impact on real GDP?
A)$180 billion increase
B)$222 billion increase
C)$380 billion increase
D)$2.0 trillion increase

Question

If government spending increased by $200 billion and the MPC within the economy was 0.9, what would be the total impact on real GDP?
A)​$180 billion increase
B)​$222 billion increase
C)​$380 billion increase
D)​$2.0 trillion increase

Quizplus · Accepted Answer

The total impact on real GDP can be calculated using the multiplier effect formula: Multiplier = 1/(1-MPC). In this case, the multiplier is 1/(1-0.9) = 10. Therefore, the total impact on real GDP = $200 billion * 10 = $2.0 trillion.

If Government Spending Increased by $200 Billion and the MPC