Answer
a) MPC = 2/3
b) If there is crowding out, then the MPC would expected to be larger. The larger MPC would allow for a higher multiple of spending, but then the crowding out effect would decrease the multiple of spending to 3.
Work Step by Step
government spending increases by 10 billion, then increases demand for goods and services by 30 billion
$30/10=3$
Every government dollar is multiplied by 3
$1/(1-MPC)=3$
$1/(1-MPC)*(1-MPC)/3=3*(1-MPC)/3$
$1/3=1-MPC$
$1/3+MPC-1/3=1-MPC+MPC-1/3$
$MPC = 1-1/3$
$MPC = 2/3$
