Suppose That Real GDP Is Initially $14 Trillion and the Government

question 130

Multiple Choice

Suppose that real GDP is initially $14 trillion and the government attempts to increase real GDP to $15 trillion. The marginal propensity to consume is 0.8, and every $1.00 increase in real government spending crowds out $0.50 in real planned investment expenditures. Which increase in government spending below could yield the desired level of real GDP?

• A)$100 billion
• B)$125 billion
• C)$200 billion
• D)$400 billion

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