Question

Our economist estimate that citizens in our country have an MPC of 0.80. To increase GDP by $1200 how much should we increase government spending

Answer 1

To increase GDP by $1200, the government should increase spending by $1500.

Step-by-step explanation:

To increase the GDP by $1200, we can use the formula:

G = (Change in GDP) / (MPC)

Given that the MPC is 0.80, the change in GDP is $1200, so we can plug these values into the formula:

G = $1200 / 0.80 = $1500

Therefore, to increase the GDP by $1200, the government should increase spending by $1500.