Question: if the mpc is 080 and the government increases spending...
If the MPC is 0.80 and the government increases spending on cancer research by $15 billion.
(a) What is the value of the initial impact on real GDP? What is the value of the total impact on real GDP? What effect do you think a $50 billion increase in government spending will have on the economy?
(b) Assume the MPC is 0.80 and policy makers have targeted real GDP to increase by $200 billion. By how much must taxes be reduced to achieve this goal?