QQuestionEconomics
QuestionEconomics
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.
6 months agoReport content
Answer
Full Solution Locked
Sign in to view the complete step-by-step solution and unlock all study resources.
Step 1I'll solve this step by step using the government purchases multiplier formula:
Step 2: Recall the Government Purchases Multiplier Formula
\frac{1}{1 - MPC}
The government purchases multiplier is calculated as:
Final Answer
- 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
Need Help with Homework?
Stuck on a difficult problem? We've got you covered:
- Post your question or upload an image
- Get instant step-by-step solutions
- Learn from our AI and community of students