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What is the spending multiplier

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  1. Here is a consumption function: C=a + bYd   If consumption is $2,000, MPC = 80% and disposable income is $2,000. What is the spending (expenditure) multiplier
  2. The government decides to stimulate the economy by increasing government spending by $4 million.  The marginal propensity to consume is .9. What is the increase in GDP by this policy? Show your work to get your answer

Reference no: EM132405630

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