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18. Assume the MPC is 0.80 and government spending declines by $500 billion. What is the...

18. Assume the MPC is 0.80 and government spending declines by $500 billion. What is the effect of this decline on RGDP?

19. Assume the MPC is 0.90 and consumer income taxes increase by $250 billion. Calculate the effect of this increase on RGDP.

20. Assume the MPC is 0.75 and consumer spending increases by $200 billion, investment spending increases by $150 billion, and government spending declines by $75 billion. What is the impact on RGDP?

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Answer #1

Ans18) RGDP declines by 2,500

change in RGDP = - 500/( 1-0.80) = - 2,500

Ans19) RGDP declines by 2250

Change in RGDP = - 0.90/(1-0.90) * 250 = -2250

Ans20) RGDP increases by 1100

Aggregate spending = 200+ 150 - 75 = 275

Change in RGDP = 275/( 1 - 0.75) = 1100

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