Assume the MPC is 0.80.The change in total spending for the economy due to a $200 billion government spending increase is

Question

Quizplus · Accepted Answer

The change in total spending is calculated using the spending multiplier, which is 1/(1-MPC). With an MPC of 0.80, the multiplier is 5. Therefore, a $200 billion increase in government spending results in a $1,000 billion increase in total spending (200 billion * 5).

Assume the MPC Is 0