Question

f the crowding-out effect is complete, then an increase in government spending of $100 billion will generate how much more real national income? (Assume a marginal propensity to save of .25.)

Answer 1

An increase in gevernment spending of $100 billion will generate $400 billion more real national income.

Step-by-step explanation:

the multiplier = 1/(marginal propensity) = 1/(0.25) = 4

increase in real national income = $100 billion×4

= $400 billion

Therefore, An increase in gevernment spending of $100 billion will generate $400 billion more real national income.