Question

The American Recovery and Reinvestment Act introduced a large amount of government spending into the economy—$789 billion! Suppose the marginal propensity to consume in the United States is 0.75. How much would the program increase total spending in the economy? $ billion (NOTE: You may round to the nearest dollar.)

Answer 1

It will increase total spending by $3156

Step-by-step explanation:

Consider the following formulas

Government spending multiplier=1/(-MPC)

=1/(1-0.75)

=4

The increase in total spending =increase in spending*spending multiplier

=789*4

=3156

It will increase total spending by $3156