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Suppose the economy is in a recession and the president wants to stimulate production and create jobs. To do this, he has dec
Suppose the economy is ina recession and the president wants to stimulate production and create jobs. To increase government
Suppose the economy is in a recession and the president wants to stimulate production and create jobs. To do this, he has dec
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Answer #1

Expenditure multiplier = 1/1-MPC

If MPC is 0.90 then, multiplier = 1/1-0.90 = 10.

If MPC is 0.80 then, multiplier = 1/1-0.80 = 5.

LESS THAN

This is so because supposedly if he increases the spending by $5 billion, then the net effect with multiplier of 10 would be $50 billion and that with multiplier of 5 would be only $25 billion. so by spending a lesser amount he can generate an income level which is higher than with MPC of 0.80

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