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Government increases purchases of goods

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Suppose the federal government increases its purchases of goods and services by $20 billion. What will be the change in the economy's real GDP? Suppose that a marginal propensity to save of 10%, and the nation has neither income taxes nor imports.

  1. Real GDP will increase by $200 billion

  2. Real GDP will increase by less than $200 billion

  3. Real GDP will decrease by $200 billion

  4. Real GDP will decrease by less than $200 billion

  5. Real GDP will increase by $20 billion

Reference no: EM131114764

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