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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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  1. 1 April, 17:54
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    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
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