Assume the MPC is 0.75.To eliminate an AD shortfall of $200 billion,the government should

Name: Assume the MPC is 0.75.To eliminate an AD shortfall of $200 billion,the government should
Brand: Quizplus
Rating: 4.9 (54 reviews)

Question

Quizplus · Accepted Answer

To eliminate an AD shortfall of $200 billion, the government needs to increase aggregate demand by $200 billion. Since the MPC is 0.75, the multiplier is 4 (1/1-0.75). Therefore, an increase in government spending by $50 billion (4 x $50 billion = $200 billion) would eliminate the AD shortfall.

Assume the MPC Is 0