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Multiplier and Change in the Level of Real GDP

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Question: Assume that government purchases decrease by $10 billion, with other factors held constant. Calculate the change in the level of real GDP demanded for each of the following values of the MPC. Then calculate the change if the government, instead of reducing its purchases, increased autonomous net taxes by $10 billion.

0.9
0.8
0.75
0.6

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Solution Summary

Provides steps necessary to determine the multiplier and change in level of real GDP.

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Solution:
What is the value of the multiplier?
Its equivalent expression: 1 / (1 - MPC)

Assume that government purchases decrease by $10 billion, with other factors held constant. Calculate the change in the level of real GDP demanded for each of ...

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