How much is the total expected increase in GDP from the government spending $100 million on PPE?
The expected increase in GDP as a result of the government spending $100 million on PPE is $500 million.
Understanding the Calculation:
To calculate the expected increase in GDP, we can use the government spending multiplier formula: GDP increase = Government spending * (1 / (1 - MPC))
When the government spends $100 million on Personal Protective Equipment (PPE) as part of the CARES Act, and the Marginal Propensity to Consume (MPC) is 0.8, we can substitute these values into the formula:
GDP increase = $100 million * (1 / (1 - 0.8))
GDP increase = $100 million * (1 / 0.2)
GDP increase = $100 million * 5
GDP increase = $500 million
Therefore, the expected increase in GDP due to the government spending $100 million on PPE is $500 million.