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Suppose the MPC is 0.60. Assume there are no crowding out or investment accelerator effects. If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right

Respuesta :

jepessoa

Answer:

$500 billion

Explanation:

we must first calculate the economy's multiplier = 1 / MPS

marginal propensity to save (MPS) = 1 - MPC = 1 - 0.6 = 0.4

economy's multiplier = 1 / 0.4 = 2.5

this means that if the government increases expenditures by $200 billion, the the economy will grow (rightward shift) by $200 x 2.5 = $500 billion

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