Government purchases rise by $100 billion and the MPC is equal 0.75.Assuming that idle resources exist at each expenditure round,and the multiplier is operative,the change in Real GDP equals

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Quizplus · Accepted Answer

The change in Real GDP can be calculated using the spending multiplier formula: Multiplier = 1/(1-MPC). With an MPC of 0.75, the multiplier is 1/(1-0.75) = 4. Therefore, the change in Real GDP is $100 billion * 4 = $400 billion.

Government Purchases Rise by $100 Billion and the MPC Is