Assume the current equilibrium level of income is $200 billion as compared to the full-employment income level of $240 billion.If the MPC is .625,what change in aggregate expenditures is needed to achieve full employment?
A) A decrease of $12 billion.
B) An increase of $25 billion.
C) An increase of $10 billion.
D) An increase of $15 billion.

Question

Quizplus · Accepted Answer

The multiplier is 1/(1-MPC) = 1/(1-0.625) = 2.67. The income gap is $240 billion - $200 billion = $40 billion. The change in aggregate expenditures needed is $40 billion / 2.67 = $15 billion.

Assume the Current Equilibrium Level of Income Is $200 Billion