Suppose the federal government increases its purchases of

Question

Suppose the federal government increases its purchases of goods and services by $20 billion. What will be the change in the economy's real GDP? Suppose that a marginal propensity to save of 10%, and the nation has neither income taxes nor imports.

1. Real GDP will increase by $200 billion

2. Real GDP will increase by less than $200 billion

3. Real GDP will decrease by $200 billion

4. Real GDP will decrease by less than $200 billion

5. Real GDP will increase by $20 billion