Question

If government purchases increase by $300 billion and the MPC is equal 0.75, the resulting change in Real GDP equals ________ billion, assuming that idle resources exist at each expenditure round, and the multiplier is operative.

Answer 1

Answer: $1200

Step-by-step explanation:

Real gross domestic product is used to know the value of the product that are produced in a particular economy after taking into consideration the effect of inflation in the prices of the goods being measured.

If government purchases increase by $300 billion and the MPC is equal 0.75, the resulting change in Real GDP equals:

= $300/(1 - MPC)

= $300/(1 - 0.75)

= $300/0.25

= $1200