Refer to the information provided in Figure 19.1 below to answer the questions that follow. Figure 19.1
-Refer to Figure 19.1. If the economy is closed and the government increases spending by 15, the new equilibrium output is

Question

Refer to the information provided in Figure 19.1 below to answer the questions that follow.  Figure 19.1
-Refer to Figure 19.1. If the economy is closed and the government increases spending by 15, the new equilibrium output is

Quizplus · Accepted Answer

In a closed economy, an increase in government spending leads to a multiplier effect on the overall economy. The multiplier effect is determined by the marginal propensity to consume (MPC). If the MPC is not provided, we typically assume a simple multiplier formula: 1/(1-MPC). Without specific numbers for the MPC, we can't calculate the exact multiplier effect. However, an increase in government spending by 15 leading to a new equilibrium output suggests that the economy has experienced a multiplied effect of this spending. The correct answer would be the one that reflects a reasonable increase in output as a result of the spending increase, taking into account typical multiplier values in macroeconomic models. Given the options, an increase to 175 suggests a multiplier effect in action, where the initial spending increase leads to a larger increase in total output.

Refer to the Information Provided in Figure 19