Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 34 - Part XII - The Influence of Monetary and Fiscal Policy on Aggregate Demand - Quick Check Multiple Choice - Page 767: 4

Answer

d) 3600 dollars

Work Step by Step

Government increases purchases by 1200 marginal propensity to consume is 2/3 multiplier = 1/(1-marginal propensity to consume) multiplier = 1/(1-2/3) multiplier = 1/(1/3) multiplier = 1/ (1/3) multiplier = 3 1200*3 = 3600
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