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if government increases its purchases by $15 billion and the mpc is 2/3, then we would expect the equilibrium gdp to: group of answer choices increase by $50 billion. decrease by $35 billion. increase by $45 billion. increase by $30 billion.

Respuesta :

If the increase in government purchases is $15 billion with MPC 2/3, the change in the equilibrium level of GDP will be the third option, an increase of $45 billion.

It is given that the government has increased its purchases by $15 billion. This implies that the Government Expenditure, i.e G has increased by $15 billion.

This would lead to a multiplier effect, increasing Y, or the equilibrium GDP by an amount much greater than $15 billion.

We know that the Government Expenditure multiplier

= 1/(1 - MPC)  X ΔG

where,

MPC = Marginal propensity to Consume

ΔG = Change in Government Expenditure.

It is given that

MPC = 2/3

ΔG = $ 15 billion.

Hence, the change in the equilibrium level of GDP will be

1/(1 - 2/3)   X   $15 billion

= 1/(1/3)   X  $15 billion

= $45 billion

The equilibrium level of GDP will increase by $45 billion

If you want to learn more about multipliers visit

https://brainly.com/question/28250015

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