Question

If the marginal propensity to consume is 0.50​, how much would government spending have to rise to increase output by ​$10, 000 ​billion? Upper DeltaG​ = ​$ nothing billion. ​(Enter your response as an​ integer.)

Answer 1

$5,000 billion

Step-by-step explanation:

We know that,

Multiplier = (1 ÷ 1 - MPC)

= ( 1 ÷ 1 - 0.50)

= (1 ÷ 0.50)

= 2

And, the output is $10,000

So, the rise in government spending would be

= Output ÷ multiplier

= $10,000 ÷ 2

= $5,000 billion

Simply we apply the multiplier formula by considering the marginal propensity to consume so that we can compute the rise in government spending