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Estimates of Real Government Consumption Form

Estimates of Real Government Consumption Form

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hello in this video I'm going to go through the government spending multiplier and do a number of example problems so here is the government spending multiplier which can be thought of as the change in output change in real GDP divided by the change in government spending it is known to be equal to one divided by one minus the marginal propensity to consume MPC is the marginal propensity to consume and the MPC gives the change in consumption spending from an additional dollar of income so the formula for the marginal propensity to consume is a change in consumption spending divided by the change in income so again just redefining these things the change in Y is the change in real GDP and the change in G is a change in government spending so let's do a problem let's first calculate the size of the government spending multiplier if the MPC equals 0.75 plugging that 0.75 into our formula we're gonna get 1 divided by 0.25 and that just equals 4 to interpret that result a $1 cut in spending

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