ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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$40.00
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$100.00
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$133.33
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$400.00
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$500.00
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Detailed explanation-1: -f the marginal propensity to consume is 0.75 and the federal government increases spending by $100 billion, the income expenditure model would predict that real GDP will increase by: $400 billion.
Detailed explanation-2: -If the MPC is 0.75, the Keynesian government spending multiplier will be 4/3; that is, an increase of $ 300 billion in government spending will lead to an increase in GDP of $ 400 billion.
Detailed explanation-3: -If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion in an economy, then consumption spending will increase by: $14 billion. The aggregate demand curve of an economy illustrates the relationship between: the price level and real gross domestic product (GDP).
Detailed explanation-4: -To calculate the maximum change in GDP, use the spending multiplier. The formula for the spending multiplier is 1/MPS or 1/(1-MPC). In the example above, the multiplier would be 5 (1/. 2).