contestada

The country of Micronesia is currently experiencing a recessionary gap. The size of the recessionary gap is $500 billion. If the marginal propensity to consume is .8, how much will the government need to spend to get the economy to full employment? brainly

Respuesta :

Answer:

The appropriate solution is "100 billion".

Explanation:

The given values are:

Recessionary gap (Total change),

= $500

Marginal propensity consume (MPC),

= 0.8

Now,

Multiplier will be:

= [tex]\frac{1}{1-MPC}[/tex]

On putting the value of MPC, we get

= [tex]\frac{1}{1-0.8}[/tex]

= [tex]5[/tex]

As we know,

⇒ [tex]Total \ change=Government \ spending's \ increase\times Multiplier[/tex]

⇒ [tex]Government \ spending's \ increase=\frac{Total \ change}{Multiplier}[/tex]

On substituting the values, we get

⇒                                                       [tex]=\frac{500}{5}[/tex]

⇒                                                       [tex]=100 \ billion[/tex]

Otras preguntas