If the MPS is 0.20 and the current GDP is $14,000 and the target level of GDP is $12,000, what change in government spending would be required to reach the target? Formulas: See Multiplier formulas at beginning of the exam. decrease government spending by $400. increase government spending by $2000. increase government spending by $400. decrease government spending by $2000.
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The formula for the multiplier is 1/(1-MPS). In this case, MPS is 0.20, so the multiplier is 1/(1-0.20) = 1.25. Show more…
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