An economy has a fixed price level, no imports and no income taxes. MPC is 0.75 and real GDP is $150 billion. Government increases expenditures by $5 billion. Calculate the: Multiplier and interpret the meaning of the multiplier. Change in real GDP and new level of real GDP.

An economy has a fixed price level, no imports and no income taxes. MPC is 0.75 and real GDP is $150 billion. Government increases expenditures by $5 billion. Calculate the: Multiplier and interpret the meaning of the multiplier. Change in real GDP and new level of real GDP.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter9: The Keynesian Model In Action

Section: Chapter Questions

Problem 8SQ

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Question

An economy has a fixed price level, no imports and no income taxes. MPC is 0.75 and real GDP is $150 billion. Government increases expenditures by $5 billion. Calculate the:

Multiplier and interpret the meaning of the multiplier.
Change in real GDP and new level of real GDP.

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