Assuming there is no trade, if the Marginal Propensity to Consume is 0.80 and the government...
Assuming there is no trade, if the Marginal Propensity to Consume is 0.80 and the government increases spending by $8 billion, by how much will output rise?
Select one:
a. By $24 billion
b. By $40 billion
c. By $48 billion
d. By $52 billion
e. By $60 billion
Homework Answers
B
Change in output = Initial increase in expenditure * 1/MPS
Now MPS (Marginal propensity to save) = 1 -MPC = 1-0.8 = 0.2
Thus change in output = $8 billion/0.2 = $40 billion
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