Fiscal Policy and the Multiplier Practice (1 of 2)- Macro Topic 3.8

The video tutorial explains the concept of a recessionary gap and how government spending can be adjusted to close this gap using the spending multiplier. It covers the calculation of the spending multiplier based on the marginal propensity to save and demonstrates how different values of marginal propensity to consume affect the required government spending. The tutorial emphasizes the logic behind spending adjustments and the impact of consumer behavior on economic policy.

Calculate the spending needed to close a 40 billion dollar gap if the spending multiplier is 5.

What happens to the required government spending if the marginal propensity to consume increases from 0.5 to 0.8?