The savings rate in a country is 25%. The government wants to expand GDP by $300...

The savings rate in a country is 25%. The government wants to expand GDP by $300 Billion. How much must they increase Government spending to reach that goal?

Solutions

Expert Solution

Solution:

MPS = 25% = 0.25

MPC = 1 - MPS = 1 -0.25 = 0.75

Multiplier = 1 /MPS = 4

Change in GDP = Change in government spending x Multiplier

$300 / 4 = Change in government spending

$75 = Change in government spending

Rahul Sunny answered 1 year ago

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