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Suppose that the MPC is 0.85 and that the Government is planning to boost the economy to increase real GDP by $2 trillion for the 2008 general elections. Assume that the current real GDP is $13 trillion, by how much would the government need to spend to achieve this goal? Can this goal be achieved before November 2008 given that the government will boost spending between January and March 2008?

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Solution Summary

A case to increase real gross domestic product (GDP) is presented in the solution.

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Given MPC=0.85

So the multiplier = 1 / 1-MPC
=1 / 1- 0.85
= 6.66
Change in real GDP= multiplier * change in ...

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