Question

suppose the federal government buys $30 billion worth of wind turbines from winds usa, a us manfucturing firm. if the mpc is 0.75, what will be the impact aggregate demand, other things equal?

Answer 1

If the MPC is 0.75, the impact on aggregate demand when the federal government buys $30 billion worth of wind turbines from a US manufacturing firm would be an increase of $120 billion.

Step-by-step explanation:

The impact on aggregate demand when the federal government buys $30 billion worth of wind turbines from a US manufacturing firm, Winds USA, can be calculated using the MPC (marginal propensity to consume). The MPC represents the portion of income that is spent on consumption. In this case, if the MPC is 0.75, it means that 0.75 or 75% of the $30 billion will be spent on consumption.

To calculate the impact on aggregate demand, we can use the formula:

Impact on aggregate demand = Change in government spending / (1 - MPC)

Substituting the values, the impact on aggregate demand = $30 billion / (1 - 0.75) = $30 billion / 0.25

= $120 billion.

Therefore, the impact on aggregate demand, other things equal, would be an increase of $120 billion.