If an economyʹs MPC is 0.75 and the MPM is 0.25, then an increase in government...

Question

Question

If an economyʹs MPC is 0.75 and the MPM is 0.25, then an increase in government spending of $2,000 will increase income by

Select one:

a. $3,000.

b. $2,000.

c. $4,000.

d. $8,000.

Answer 1

Answer #1

Correct answer : option c) $4000

Reason :

Increase in income = Multiplier × Spending

= 1/(1-MPC + MPM ) × Spending

= 1/(1-0.75+0.25) × 2000

= $4000

Answer 2

Similar Homework Help Questions

In the Keynesian-cross model, if the MPC equals 0.75 then a $2 billion increase in government...

In the Keynesian-cross model, if the MPC equals 0.75 then a $2 billion increase in government spending increases the equilibrium level of income by __________. A) $1 billion. B) $3 billion. C) $4 billion. D) $2 billion.
Assume that GDP = $10,000 and the MPC = 0.75. If policy makers want to increase...

Assume that GDP = $10,000 and the MPC = 0.75. If policy makers want to increase GDP by 30 percent, and they want to change taxes and government spending by equal amounts, how much would government spending and taxes each need to increase? Group of answer choices $1,000 $300 $3,000 $750
If the marginal propensity to consume (MPC) is 0.75, and if the goal is to increase...

If the marginal propensity to consume (MPC) is 0.75, and if the goal is to increase real GDP by $400 million, then by how much would government spending have to change to generate this increase in real GDP? Group of answer choices a. $200 million. b. $400 million. c. $140 million. d. $100 million.

Suppose the reserve ratio is 0.25, and the Bank of Canada buys $2,000 of Canadian government...

Suppose the reserve ratio is 0.25, and the Bank of Canada buys $2,000 of Canadian government securities. What is the minimum amount by which the money supply can increase? A) $4,000 B) $3,000 C) $8,000 D) $2,000
Multiple Choice: 1) Assume the MPC is 0.75 and lump sum taxes are collected by the government. What is the governm...

Multiple Choice: 1) Assume the MPC is 0.75 and lump sum taxes are collected by the government. What is the government tax multiplier? A)-1.33 B) - 25 C) - 75 D) -4 E) -3 , which the recessionary gap. 2) During a Recession, the MPC tends to a) Increase, increases b) Decrease, decreases c Decrease, increases d) Increase, decreases 3) Suppose that the MPC is.75 and the US Federal Government reduces taxes by 10 million dollars. After 3 rounds of...
just answers 19 An increase il SI00. Which of the foll the MPC is 0.5 and...

just answers 19 An increase il SI00. Which of the foll the MPC is 0.5 and the increase in invesu the MPC is 0.5 and the increase in investment wd the MPC is 0.75 and the increase in investment was 25 the MPC is 0.75 and the increase in investment was 20 Assuming the new equilibrium income level is $400 and the level of full employment income is S600, there would be a: deflationary gap of $50 deflationary gap of...

Suppose the marginal propensity to consume if 0.75 and autonomous consumption (consumption at zero income) is...

Suppose the marginal propensity to consume if 0.75 and autonomous consumption (consumption at zero income) is $4,000. If income is $50,000, consumption spending is a. $37,500 b. $41,500 C. $45,500 d. $54,000 QUESTION 4 If the consumption function for an economy is C = 180 + 75 Yd (disposable income) and spending increases by $800, then the resulting change in national income is a. +$2,800 OOO b. 5-3,200 c. $-2,800 d. $+3,200 QUESTION 5 Assume the actual GDP is $4800...
If the marginal propensity to consume (MPC) equals 0.25 and the government increases spending by $600...

If the marginal propensity to consume (MPC) equals 0.25 and the government increases spending by $600 billion, the total impact on GDP will be approximately:
The multiplier process depicted in the following table is based on an MPC of 0.75. a...

The multiplier process depicted in the following table is based on an MPC of 0.75. a Recompute the first four cycles using an MPC of 0.86 MPC = 0.75 MPC -0.86 Change in Spending Cumulative Increase Change in Spending Cumulative Increase Spending during Cycle in Spending during Cycle in Spending Cycles (billions per year) (billions per year) (billions per year (billions per year) 1 S100 00 S 100.00 $100.00 2 7500 175.00 3 56 25 231 25 42 18 273.44...

Investment increases by $200 million and the value of MPC is 0.75. What would be the...

Investment increases by $200 million and the value of MPC is 0.75. What would be the total increase in spending? 1 a. $750 million b. $800 million c. $266 million L d. $200 million