Figure 23-4
-Refer to Figure 23-4. Potential GDP equals $500 billion. The economy is currently producing GDP₁ which is equal to $450 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 $500 billion. The economy is currently producing GDP<sub>1</sub> which is equal to $450 billion. If the MPC is 0.8, then how much must autonomous spending change for the economy to move to potential GDP? A) -$40 billion B) -$10 billion C) $10 billion D) $40 billion

Figure 23-4 -Refer to Figure 23-4. Potential GDP equals $500 billion. The economy is currently producing GDP<sub>1</sub> which is equal to $450 billion. If the MPC is 0.8, then how much must autonomous spending change for the economy to move to potential GDP? A) -$40 billion B) -$10 billion C) $10 billion D) $40 billion

-Refer to Figure 23-4. Potential GDP equals $500 billion. The economy is currently producing GDP₁ which is equal to $450 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

The change in GDP needed is $50 billion ($500 billion - $450 billion). With an MPC of 0.8, the multiplier is 1/(1-0.8) = 5. Therefore, autonomous spending must increase by $10 billion ($50 billion / 5) to achieve the potential GDP.

Figure 23-4 -Refer to Figure 23-4. Potential GDP Equals $500 Billion. the $500