The American Recovery and Reinvestment Act introduced a large amount of government spending into the economy-$789 billion! Suppose the marginal propensity to consume in the United States is 0.75. How much would the program increase total spending in the economy? $ billion (NOTE: You may round to the nearest dollar.)

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Business

Cherish Pineda

1 April, 16:21

The American Recovery and Reinvestment Act introduced a large amount of government spending into the economy-$789 billion! Suppose the marginal propensity to consume in the United States is 0.75. How much would the program increase total spending in the economy? $ billion (NOTE: You may round to the nearest dollar.)

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Answers (1)

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Aldo Burch · Answer 1

It will increase total spending by $3156

Explanation:

Consider the following formulas

Government spending multiplier=1 / (-MPC)

=1 / (1-0.75)

=4

The increase in total spending = increase in spending*spending multiplier

=789*4

=3156

It will increase total spending by $3156