If MPC = 0.75 (and there are no income taxes) when G increases by 100, then the IS curve for any given interest rate shifts to the right by:
A) 100.
B) 200.
C) 300.
D) 400.
Ans: D ) 400
Explanation:
Multiplier = 1 / ( 1 - MPC )
= 1 / ( 1 - 0.75 )
= 1 / 0.25
= 4
If MPC = 0.75 (and there are no income taxes) when G increases by 100, then the IS curve for any given interest rate shifts to the right by ;
= Government spending * multiplier
=100 * 4
= 400
If MPC = 0.75 (and there are no income taxes) when G increases by 100, then...
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