4. In the Keynesian-cross model with an MPC > 0, if government purchases increase by 250,...
4. In the Keynesian-cross model with an MPC > 0, if government purchases increase by 250, then the equilibrium level of income: A) increases by 250. B) increases by more than 250. C) decreases by 250. D) increases but by less than 250.
Homework Answers
As it has been given that in the Keynesian-cross model with an MPC > 0, if government purchases increase by 250,
MPS will be also positive.
Spending multiplier= 1/MPS
It will be greater than 1.
then the equilibrium level of income= change in G* spending multiplier
=250* greater than 1
Hence equilibrium level of income will increase by more than $250.
Hence option B is the correct answer.
B) increases by more than 250.
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