If the MPC is 0.6 and if the goal is to increase real GDP by $200 million, then by how much would government spending have to change to generate this increase in real GDP?
A) $240 million.
B) $200 million.
C) $180 million.
D) $80 million.

Question

Quizplus · Accepted Answer

The spending multiplier is 1/(1-MPC) = 1/0.4 = 2.5. To achieve a $200 million increase in GDP, government spending must change by $200 million / 2.5 = $80 million.

If the MPC Is 0