Understanding the Spending Multiplier

What is the difference between the current output and the desired output in the recessionary gap scenario?

• 20 billion dollars

• 100 billion dollars

• 40 billion dollars

• 60 billion dollars

If the marginal propensity to consume is 0.5, what is the value of the spending multiplier?

• 4

• 1

• 2

• 3

How much should the government spend to close a 40 billion dollar gap when the spending multiplier is 2?

• 40 billion dollars

• 10 billion dollars

• 20 billion dollars

• 30 billion dollars

What is the spending multiplier when the marginal propensity to consume is 0.8?

• 5

• 4

• 3

• 2

Why does a higher marginal propensity to consume result in less government spending needed to close the gap?

• Because the spending multiplier is lower

• Because the spending multiplier is higher

• Because the gap is smaller

• Because people save more