How much would total output change if 25 percent of additional income was not spent and exports went up by $50 billion?
A) $12.5 billion.
B) $62.5 billion.
C) $75 billion.
D) $200 billion.

Question

Quizplus · Accepted Answer

The marginal propensity to consume (MPC) is 0.75 (since 25% is not spent). The multiplier is 1/(1-MPC) = 4. An increase in exports by $50 billion would increase total output by 4 * $50 billion = $200 billion.

How Much Would Total Output Change If 25 Percent of Additional