Suppose That Real GDP Is Initially $100 Trillion and the Government

question 263

Multiple Choice

Suppose that real GDP is initially $100 trillion and the government attempts to increase real GDP to $101 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

---

Definitions:

Trade Surplus

A scenario in which the value of goods a nation sells to other countries is greater than what it purchases from them, leading to a favorable trade balance.

World Trade Organization

An international organization that regulates and facilitates international trade between nations.

U.S. Goods

Products and services that are produced within the United States.

Export Subsidy

A government payment to a domestic producer to enable the firm to reduce the price of a good or service to foreign buyers.