If the MPC = 0.80,the cumulative decrease in total spending resulting from an initial $150 recessionary gap would be
A)$150.
B)$187.5.
C)$500.
D)$750.

Name: If the MPC = 0.80,the cumulative decrease in total spending resulting from an initial $150 recessionary gap would be A)$150. B)$187.5. C)$500. D)$750.
Brand: Quizplus
Rating: 4.9 (32 reviews)

Question

Quizplus · Accepted Answer

The spending multiplier is calculated as 1/(1-MPC), which is 1/(1-0.80) = 5. The cumulative decrease in total spending is the initial gap multiplied by the multiplier: $150 * 5 = $750.