If you were told the MPC was = 0.75 and the government engaged in a spending increase of $400B, then the change in GDP would be:
A) $400B.
B) $1600B.
C) $300B
D) $1200B

Question

Quizplus · Accepted Answer

The change in GDP can be calculated using the spending multiplier, which is 1/(1-MPC). With an MPC of 0.75, the multiplier is 4. Therefore, the change in GDP is 4 times the increase in spending: 4 * $400B = $1600B.

If You Were Told the MPC Was = 0