Suppose the federal government buys $20 million worth of computers.If the MPC is 0.60,what will be the impact on aggregate demand,other things being equal?

Question

Quizplus · Accepted Answer

The impact on aggregate demand can be calculated using the spending multiplier, which is 1/(1-MPC). With an MPC of 0.60, the multiplier is 1/(1-0.60) = 2.5. Therefore, the increase in aggregate demand is $20 million * 2.5 = $50 million.

Suppose the Federal Government Buys $20 Million Worth of Computers