Question

How much of a change in GDP will result if government increases its spending by $3 billion and the MPC in the economy is 0.67?

Answer 1

$Change in GDP=\frac{government spending}{1-MPC}$

$=\frac{ \$3 billion}{1-0.67}$

$=\frac{\$3billion}{0.33}$

$=\$9.09$

Hence increase in GDP is $9.09 billion