The Senate on Friday evening passed the $787 billion American Recovery and Reinv

Question

The Senate on Friday evening passed the $787 billion American Recovery and Reinvestment Act of 2009, which was drawn up, amended and negotiated in record time.... President Barack Obama will sign the recently approved economic stimulus bill on Tuesday in Denver, Colorado, two senior administration officials told CNN.... "The goal at the heart of this plan is to create jobs. Not just any jobs, but jobs doing the work America needs done: reparing our infrastructure, modernizing our schools and hospitals, and promoting the clean, alternative energy sources that will help us finally declare independence from foreign oil," President Obama said Friday morning. The Obama economic team estimates the stimulus plan will create or save between 3 million and 4 million jobs.... How the bill breaks down: The package devotes $308.3 billion-or 39 percent-to appropriations spending, according to the Congressional Budget Office. That includes $120 billion on infrastrucure and science and more than $30 billion on energy-related infrastructure projects, according to key congressional committees. It devotes another $267 billion-or 34 percent-on direct spending, including increased unemployment benefits and food stamps, CBO said. - Jeanne Sahadi And it provides $212 billion-or 27 percent-for tax breaks for individuals and businesses, although the biggest piece of that is for individuals.

How much would AD eventually increase with Obama’s increased appropriations spending if consumers had an MPC of 0.90?

Explanation / Answer

When MPC = 0.90 then the multiplier is 1 / (1 - MPC) = 1 / (1 - 0.90) = 10

So AD will eventually increase by (10 * $787) billion = $7.87 trillion with Obama's increased appropriations spending.

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