Answer:
$200 billion
Explanation:
Given that,
Marginal propensity to consume, MPC = 0.8
Real GDP currently being demanded = $14 trillion
Government wants to increase real GDP demanded to $15 trillion.
Multiplier:
[tex]=\frac{1}{1 - MPC}[/tex]
[tex]=\frac{1}{1 - 0.8}[/tex]
= 5
Government wants to increase real GDP by:
= $15 trillion - $14 trillion
= $1 trillion
Therefore, the government has to increase spending:
[tex]=\frac{1}{multiplier}\times Desired\ increase\ in\ real\ GDP[/tex]
[tex]=\frac{1}{5}\times 1 trillion[/tex]
= 0.2 × $1 trillion
= $200 billion
