Figure 12-3
-Refer to Figure 12-3.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 12-3 Figure 12-3 -Refer to Figure 12-3.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 12-3 -Refer to Figure 12-3.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 12-3.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 distance between N and L is equal to the change in GDP divided by the MPC. Distance between N and L = (GDP₂ - GDP₁) / MPC Distance between N and L = ($200 billion) / 0.8 Distance between N and L = $250 billion Therefore, government spending must have increased by $40 billion (the difference between $250 billion and $200 billion) in order to shift up the aggregate expenditure line and move the economy from point N to point L.

Figure 12-3 -Refer to Figure 12-3.Suppose That Government Spending Increases,shifting Up the Increases,shifting