Ashtin W.
asked • 02/28/22Suppose consumer spending increases by 10 billion dollars. If the MPC=.75, what is the total impact of the multiplier effect on the economy?
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1 Expert Answer
Steven T. answered • 03/05/22
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AP Economics teacher with 25 years experience following economic data
The spending multiplier is 1/MPS. Since MPC = 0.75, then MPS = 0.25. Thus, the spending multiplier is 4. Spending increase of $10 billion can have up to a $40 billion impact on the economy.
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Charles W.
MPC = .75 therefore the MPS = .25 and the Spending Multiplier = 4 Spending multiplier is 1/MPS 10b of consumer spending x 4 = 40b increase to GDP03/02/22