Spending multiplier practice problems

Macroeconomics Unit 3. Try each one, then open the worked solution. The Credit Sprint app generates unlimited new versions with fresh numbers.

Problem 1.

The MPC is 0.6. Government spending rises by $30 billion. What is the maximum change in real GDP?

Show solution

Multiplier = 1 ÷ (1 − 0.6) = 2.5. 2.5 × $30B = $75B.

Problem 2.

The MPC is 0.6. Government spending rises by $10 billion. What is the maximum change in real GDP?

Show solution

Multiplier = 1 ÷ (1 − 0.6) = 2.5. 2.5 × $10B = $25B.

Problem 3.

The MPC is 0.75. Government spending rises by $35 billion. What is the maximum change in real GDP?

Show solution

Multiplier = 1 ÷ (1 − 0.75) = 4. 4 × $35B = $140B.

Problem 4.

The MPC is 0.75. Government spending rises by $60 billion. What is the maximum change in real GDP?

Show solution

Multiplier = 1 ÷ (1 − 0.75) = 4. 4 × $60B = $240B.

Problem 5.

The MPC is 0.6. Government spending rises by $25 billion. What is the maximum change in real GDP?

Show solution

Multiplier = 1 ÷ (1 − 0.6) = 2.5. 2.5 × $25B = $62.5B.

Problem 6.

The MPC is 0.5. Government spending rises by $15 billion. What is the maximum change in real GDP?

Show solution

Multiplier = 1 ÷ (1 − 0.5) = 2. 2 × $15B = $30B.