6) Suppose that real GDP is currently $13.1 trillion, which is $600 billion less than the real GDP needed to achieve full employment. The MPC is 0.75. Holding other factors constant, by how much will government purchases need to change in order to increase real GDP by $600 billion? $
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The spending multiplier (K) is calculated using the formula K = 1 / (1 - MPC). Given that the MPC is 0.75, we can calculate the spending multiplier: K = 1 / (1 - 0.75) = 1 / 0.25 = 4. Show more…
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