Given that the MPC = 0.75, and the recessionary gap is equal to $40 billion, what is the necessary hange in aggregate demand to achieve full-employment?

Name: Given that the MPC = 0.75, and the recessionary gap is equal to $40 billion, what is the necessary hange in aggregate demand to achieve full-employment?
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Quizplus · Accepted Answer

The multiplier is 1/(1-MPC) = 1/0.25 = 4. To close a $40 billion recessionary gap, aggregate demand must increase by $40 billion / 4 = $10 billion.

Given That the MPC = 0