In an economy, the government wants to increase aggregate demand by $50 billion

Q: In an economy, the government wants to increase aggregate demand by $50 billion

Ans: $20 billion Explanation: Multiplier = 1 / 0.4 = 2.5 Increase government spending = $50 billion / 2.5 = $20 billion

ID: 1129583 • Letter: I

Question

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by:

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by:

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by:

Explanation / Answer

Ans: $20 billion

Explanation:

Multiplier = 1 / 0.4 = 2.5

Increase government spending = $50 billion / 2.5 = $20 billion

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In an economy, the government wants to increase aggregate demand by $50 billion

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