Suppose that the slope of the AE curve is 0.80.If prices remain constant and government expenditure increases by $10 billion,what will be the change in real GDP?

Question

Quizplus · Accepted Answer

The change in real GDP is calculated using the spending multiplier, which is 1/(1-MPC). Here, MPC is 0.80, so the multiplier is 5. Therefore, the change in GDP is 5 times the increase in government expenditure: 5 * $10 billion = $50 billion.

Suppose That the Slope of the AE Curve Is 0