Figure 23-4
-Refer to Figure 23-4. Potential GDP equals $100 billion. The economy is currently producing GDP₁ which is equal to $90 billion. If the MPC is 0.8, then how much must autonomous spending change for the economy to move to potential GDP?

Question

Figure 23-4 Figure 23-4 -Refer to Figure 23-4. Potential GDP equals $100 billion. The economy is currently producing GDP<sub>1</sub> which is equal to $90 billion. If the MPC is 0.8, then how much must autonomous spending change for the economy to move to potential GDP? A) -$18 billion B) -$2 billion C) $2 billion D) $18 billion

Figure 23-4 -Refer to Figure 23-4. Potential GDP equals $100 billion. The economy is currently producing GDP<sub>1</sub> which is equal to $90 billion. If the MPC is 0.8, then how much must autonomous spending change for the economy to move to potential GDP? A) -$18 billion B) -$2 billion C) $2 billion D) $18 billion

-Refer to Figure 23-4. Potential GDP equals $100 billion. The economy is currently producing GDP₁ which is equal to $90 billion. If the MPC is 0.8, then how much must autonomous spending change for the economy to move to potential GDP?

Quizplus · Accepted Answer

To find the change in autonomous spending needed to reach potential GDP, use the formula: Change in GDP = Multiplier * Change in Autonomous Spending. The multiplier is 1/(1-MPC) = 1/(1-0.8) = 5. The change in GDP needed is $100 billion - $90 billion = $10 billion. Therefore, Change in Autonomous Spending = $10 billion / 5 = $2 billion.

Figure 23-4 -Refer to Figure 23-4. Potential GDP Equals $100 Billion. the $100