Suppose That Real GDP Is Initially $13 Trillion and the Government

question 89

Multiple Choice

Suppose that real GDP is initially $13 trillion and the government attempts to increase real GDP to $14 trillion. The marginal propensity to consume is 0.75, and every $1.00 increase in real government spending crowds out $0.50 in real planned investment expenditures. How much increase in real government spending could lead to the desired level of real GDP?

• A)$200 billion
• B)$250 billion
• C)$500 billion
• D)$1 trillion

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Definitions:

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