If the MPC = 0.90,the total change in spending resulting from an initial $200 increase in aggregate spending will be
A)$2,000.
B)$200.
C)$180.
D)$1,800.

Question

Quizplus · Accepted Answer

The total change in spending resulting from an initial change in aggregate spending can be calculated using the multiplier effect formula, which is 1/(1-MPC). With an MPC (marginal propensity to consume) of 0.90, the multiplier is 1/(1-0.90) = 10. Therefore, an initial $200 increase in aggregate spending leads to a total change in spending of 200 * 10 = $2,000.