Figure 12-4
-Refer to Figure 12-4.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 12-4 Figure 12-4 -Refer to Figure 12-4.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 12-4 -Refer to Figure 12-4.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 12-4.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

To move the economy to its potential GDP of $500 billion from its current GDP of $450 billion, an increase of $50 billion in GDP is needed. The multiplier (1/(1-MPC)) is 1/(1-0.8) = 5. Therefore, the required change in autonomous spending is $50 billion / 5 = $10 billion.

Figure 12-4 -Refer to Figure 12-4.Potential GDP Equals $500 Billion.The Economy Is