in-a-recession-the-government-increases-spending-by-400-billion-with-an-mpc-of-0

Question

In a recession, the government increases spending by $400 billion with an MPC of 0.85. Evaluate the potential impact on GDP.

Accepted Answer

GDP could increase by $2,666.67 billion, significantly boosting economic activity.

Answer

GDP could decrease due to crowding out of private investment.

Answer

GDP could increase by $800 billion, doubling the government spending.

Answer

GDP could increase by $400 billion, matching the government spending.

In a recession, the government increases spending by \$400 billion with an MPC of 0.85. Evaluate the potential impact on GDP.