Question

Assume that a hypothetical economy with an MPC of 0.9 is experiencing a severe recession. Instructions: In part a, round your answers to 1 decimal place. Enter your answers as a positive number. In part b, enter your answers as a whole number. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $25 billion

Answer 1

$10 billion

Step-by-step explanation:

Calculation for By how much would government spending have to rise to shift the aggregate demand curve rightward by $25 billion

Using this formula

Government multiplier spending=1/1-MPC

Where,

MPC=0.9

Let plug in the formula

Government multiplier spending=1/1-0.9

Government multiplier spending=1/0.1

Government multiplier spending=$10 billion

Therefore how much would government spending have to rise to shift the aggregate demand curve rightward by $25 billion will be $10 billion