Assume the value of equilibrium real GDP is $800 billion dollars. Suppose the government increased spending by $20 billion dollars to increase real GDP.
a) If the MPC is 0.6 what is the value of the multiplier?
b) What is the new equilibrium value of real GDP corresponding to the $20 billion dollar increase in government spending?
c) If the MPC is 0.8 what is the value of the multiplier?
d) What would be the new equilibrium value of real GDP corresponding to the $20 billion dollar increase in government spending?
Illustrate and explain your answers using the aggregate expenditure model. Ensure that you show any necessary calculations.