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 $400 billion.If the MPC is 0.75,then what is the distance between N and L or by how much did government spending change?
A)$10 billion
B)$100 billion
C)$200 billion
D)$300 billion

Question

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 $400 billion.If the MPC is 0.75,then what is the distance between N and L or by how much did government spending change?
A)$10 billion 
B)$100 billion 
C)$200 billion 
D)$300 billion

Quizplus · Accepted Answer

The multiplier effect is calculated as 1/(1-MPC). With an MPC of 0.75, the multiplier is 4. Therefore, the change in GDP ($400 billion) divided by the multiplier (4) gives the change in government spending, which is $100 billion.

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