Question

if the mpc is 0.79 and government purchases increase by $1,569, holding all else constant, real gdp will change by _____ according to the multiplier effect. please round to 2 decimal places. be sure to include a negative sign (-) if it is a decrease and do not include a dollar sign ($) when answering.

Answer 1

With an MPC of 0.79, the increase in government purchases of $1,569 leads to an increase in real GDP of $7468.84, as per the multiplier effect.

Step-by-step explanation:

When the marginal propensity to consume (MPC) is 0.79 and government purchases increase by $1,569, the corresponding change in real GDP can be determined using the multiplier effect.

The multiplier can be calculated as 1 divided by the marginal propensity to save (MPS), which is 1 minus the MPC. So, the multiplier in this case would be 1 / (1 - 0.79) = 1 / 0.21 = 4.76. To find the total change in real GDP, we multiply the change in government spending by the multiplier: $1,569 * 4.76. This results in an increase in real GDP of $7468.84 when rounded to two decimal places.

Answer 2

The increase in government purchases will lead to a change of $7,468.44 in real GDP, calculated using the spending multiplier effect with an MPC of 0.79.

Step-by-step explanation:

If the marginal propensity to consume (MPC) is 0.79 and government purchases increase by $1,569, real GDP will change according to the multiplier effect. To determine the change in real GDP, we use the spending multiplier formula, which is 1/(1 - MPC). In this case, the multiplier is 1/(1 - 0.79) = 1/(0.21) = 4.76. The change in real GDP is then calculated by multiplying the increase in government spending by the multiplier: $1,569 * 4.76. This equals a change of $7,468.44 real GDP.