If MPC = 0.8, a $200 billion increase in government purchases would have what size effect on the "first round" of induced added consumption?
A)$80 billion
B)$160 billion
C)$200 billion
D)$800 billion

Question

If MPC = 0.8, a $200 billion increase in government purchases would have what size effect on the "first round" of induced added consumption?
A)​$80 billion
B)​$160 billion
C)​$200 billion
D)​$800 billion

Quizplus · Accepted Answer

The first round of induced added consumption is given by the equation: MPC x change in government purchases. Therefore, the answer is 0.8 x $200 billion = $160 billion.