Economics
posted by jay .
Suppose that the MPC = 0.8 and that $12 trillion of real GDP is currently being demanded. The government wants to increase real GDP demanded to $13 trillion. By how much would it have to increase government spending to achieve this goal?
Can someone give me the formula for this?
Interestingly, the final answer keeps changing depending on the level of your economics course. If this your first macroeconomics then use as simple multiplier. The multiplier is simply 1/MPS, where MPS is the marginal propensity to save = 1MPC. So in your example, the multiplier = 1/.2 = 5 With a 5 multiplier, how much does govt need to spend to raise GNP by 1trillion. Take it from here.
Now then, as you advance in econ the simple problem becomes more complicated. Govt cant really just spend more without raising taxes (or printing money). Imposing a tax will greatly reduce the multiplier. But, don't worry about this now.
Respond to this Question
Similar Questions

Economics
If a government raises its expenditures by $50 billion and at the same time levies a lumpsum tax of $50 billion, the net effect on the economy will be to: a. increase GDP by less than $50 billion b. increase GDP by more than $50 billion … 
Macroeconomics
The following calculations help you see how the ratio of debt to GDP changes from one year to the next. Suppose that in a hypothetical country with a currency called the ducat, debt is equal to 140 trillion ducats and GDP is equal … 
economics
Assume that government purchases decrease by $10 billion, with other factors held constant, including the price level. Calculate the change in the level of real GDP demanded for each of the following values of the MPC. a. 0.9 b. 0.8 … 
Macroeconomics
How would i approach this question? I don't necessarily want an answer. A "how to" would be better. (Simple Spending Multiplier) For each of the following values for the MPC, determine the size of the simple spending multiplier and 
Macroeconomics
Wondering if I am doing this correctly?? If net taxes are increased by 3 billion dollars by how much would we expect real GDP to change? 
Macro Consumption Question
(Simple Spending Multiplier) For each of the following values for the MPC (marginal propensity to consume), determine the size of the simple spending multiplier and the total change in real GDP demanded following a $10 billion decrease … 
Economics
GDP=375 Government spending increases by 50 Taxes increase by 50 MPC=.9 What is the new equilibrium GDP? 
Economics
GDP=500 Government spending decreases by 20 Taxes increase by 20 Investment decreases by 20 MPC=.8 What is the new equilibrium GDP? 
Economics
GDP=500 Government spending decreases by 20 Taxes increase by 20 Investment decreases by 20 MPC=.8 What is the new equilibrium GDP? 
macroeconomics
GDP rises from $4 trillion in 2006, the base year, to $5 trillion in 2012. The GDP deflator in 2012 is 120. Find real GDP in 2012. Find the percentage increase in real GDP between 2006 and 2012.