Question

If the MPC is 0.9 and a component of AD, such as Government, is increased by $2, then the maximum amount of change in income and output for the nation would be ___________1. $20 2. $25 3. $50 4. $100

Answer 1

1. $20

Step-by-step explanation:

MPC = 0.9

g = $2

change in y = 1/(1 - MPC)*g

= 1/(1 - 0.9)*2

= $20

Therefore, The maximum amount of change in income and output for the nation would be $20.