The government increases its spending by $10 billion. Aggregate demand will increase by how much?

Question

The government increases its spending by $10 billion. Aggregate demand will increase by how much?

Answer 1

More than $10 billion.  The amount can't be determined until you know the value of the MPC for the spending multiplier.  The equation would be Change in G times 1/1-mpc.

Answer 2

By: ΔY=ΔG/MPS=10/MPS

MPS=1-MPC

MPS - marginal propensity to save

MPC - marginal propensity to consume

It means that AD will increase by more than initial $10 billion - usually more than twice or even up to 10 times more for most economies.

Answer 3

They will eat a lot of graps. And grapes.

Yum.