Calculate the impact of a $96 billion increase in government spending on equilibrium GDP when the marginal propensity to consume is 0.8, the marginal tax rate is15% and the marginal propensity to import is 0.15.

Question

Quizplus · Accepted Answer

The correct answer is A because the impact of a $96 billion increase in government spending on equilibrium GDP is calculated as follows:ΔGDP = ΔG / (1 - MPC - MPM - MTR)ΔGDP = 96 / (1 - 0.8 - 0.15 - 0.15)ΔGDP = 96 / 0.1ΔGDP = 960Therefore, the impact of a $96 billion increase in government spending on equilibrium GDP is $960 billion.

Calculate the Impact of a $96 Billion Increase in Government