Figure 12-3
-Refer to Figure 12-3.Suppose that government spending increases,shifting up the aggregate expenditure line.GDP increases from GDP₁ to GDP₂,and this amount is $400 billion.If the MPC is 0.75,then what is the distance between N and L or by how much did government spending change?

Question

Figure 12-3 Figure 12-3 -Refer to Figure 12-3.Suppose that government spending increases,shifting up the aggregate expenditure line.GDP increases from GDP<sub>1</sub> to GDP<sub>2</sub>,and this amount is $400 billion.If the MPC is 0.75,then what is the distance between N and L or by how much did government spending change? A) $10 billion B) $100 billion C) $200 billion D) $300 billion

Figure 12-3 -Refer to Figure 12-3.Suppose that government spending increases,shifting up the aggregate expenditure line.GDP increases from GDP<sub>1</sub> to GDP<sub>2</sub>,and this amount is $400 billion.If the MPC is 0.75,then what is the distance between N and L or by how much did government spending change? A) $10 billion B) $100 billion C) $200 billion D) $300 billion

-Refer to Figure 12-3.Suppose that government spending increases,shifting up the aggregate expenditure line.GDP increases from GDP₁ to GDP₂,and this amount is $400 billion.If the MPC is 0.75,then what is the distance between N and L or by how much did government spending change?

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC), which equals 1/(1-0.75) = 4. The increase in GDP ($400 billion) is a result of the initial increase in government spending multiplied by the multiplier. Therefore, the change in government spending is $400 billion divided by 4, which equals $100 billion.

Figure 12-3 -Refer to Figure 12-3.Suppose That Government Spending Increases,shifting Up the Increases,shifting