Macroeconomics help hw question?

Question

Why does a $1 increase in government purchases lead to more than a $1 increase in income & spending?

This is a hw question on my Macroeconomics assignment. If someone could help me out I would really appreciate it.

I always give best answer!

Answer 1

That's because of multiplier effect ΔY/ΔG=1/(1-MPC) and usually 1≤ MPC <0.5

Even for more complex model of economy (IS-LM) within some MPC ranges this remains true.