If an economyʹs MPC is 0.75 and the MPM is 0.25, then an increase in government...
If an economyʹs MPC is 0.75 and the MPM is 0.25, then an increase in government spending of $2,000 will increase income by
Select one:
a. $3,000.
b. $2,000.
c. $4,000.
d. $8,000.
Homework Answers
Correct answer : option c) $4000
Reason :
Increase in income = Multiplier × Spending
= 1/(1-MPC + MPM ) × Spending
= 1/(1-0.75+0.25) × 2000
= $4000
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