Macroeconomics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 13

Calculate the resulting change in GDP for each of the following MPCs when the government increases its spending by $250 billion. For each, comment on the relationship between the MPC and the resulting change in GDP-as the MPC rises, does its effect on GDP increase or decrease?
a. The marginal propensity to consume (MPC) = 0.2.
b. The marginal propensity to consume (MPC) = 0.5.
c. The marginal propensity to consume (MPC) = 0.8.