An increase in government spending by $100 would, if the MPC = 0.90, result in an increase in real GDP by:
A) $1,000.
B) $9,000.
C) $900.
D) $190.
E) inadequate information is given.

Question

Quizplus · Accepted Answer

The spending multiplier is calculated as 1/(1-MPC). With an MPC of 0.90, the multiplier is 10. Therefore, an increase in government spending by $100 would increase real GDP by $100 * 10 = $1,000.

An Increase in Government Spending by $100 Would, If the MPC