What is multiplier-policy of increasing government spending

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Reference no: EM13816809

Assume an open, mixed economy (C+I+G+X=real GDP) and an MPS of .2 What is the multiplier?

a. if the government spending (G) increases by $50B, how much will the real GDP increase?

b. If taxes also increase by $50B, consumption (C) will fall by how much?

c. The result will be a $200B decline in real GDP. Was the policy of increasing government spending and taxes by the same amount expansionary, contractionary, or ineffective?

Reference no: EM13816809

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