Suppose the economy is in a recession and that the marginal propensity to consume is 0.75. Assuming that the price level is constant, by how much would the government have to increase its expenditures in order to increase real output by $200 billion?

Question

Quizplus · Accepted Answer

The government spending multiplier is calculated as 1/(1-MPC), which is 1/(1-0.75) = 4. To increase real output by $200 billion, the government needs to increase expenditures by $200 billion / 4 = $50 billion.

Suppose the Economy Is in a Recession and That the Marginal