If the marginal propensity to consume (MPC) is 0.8, the government purchases multiplier will be ______.

This means that a 1increaseingovernmentpurchaseswillleadtoa _____ increase in real GDP.

Question

If the marginal propensity to consume (MPC) is 0.8, the government purchases multiplier will be ______.

This means that a 1increaseingovernmentpurchaseswillleadtoa _____ increase in real GDP.

StudyXY · Accepted Answer

I'll solve this step by step using the government purchases multiplier formula: : Recall the Government Purchases Multiplier Formula : Identify the Marginal Propensity to Consume (MPC) : Calculate the Multiplier : Interpret the Multiplier - The government purchases multiplier is 5 - A $1 increase in government purchases will lead to a $5 increase in real GDP Key Insights: - The multiplier works because each round of spending creates additional economic activity - Higher MPC leads to a larger multiplier effect - In this case, 80% of each additional dollar is spent, creating a multiplier of 5

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QuestionEconomics

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Step 1
I'll solve this step by step using the government purchases multiplier formula:

Step 2
: Recall the Government Purchases Multiplier Formula

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