If the MPC equals 0.75 and G increases by $100,real GDP demanded will increase by
A)75 percent
B)25 percent
C)$50
D)$200
E)$400

Name: If the MPC equals 0.75 and G increases by $100,real GDP demanded will increase by A)75 percent B)25 percent C)$50 D)$200 E)$400
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Question

Quizplus · Accepted Answer

The multiplier effect is calculated as 1/(1-MPC). With an MPC of 0.75, the multiplier is 4. Therefore, an increase in government spending (G) by $100 will increase real GDP demanded by 4 * $100 = $400.

If the MPC Equals 0