Assume the current equilibrium level of income is $200 billion as compared to the full-employment income level of $240 billion. if the mpc is 0.625, what change in aggregate expenditures is needed to achieve full employment?

increase the aggregate expenditure to $15 billion ($40-$25)

to achieve full employment.

Explanation:

Note:

If change in aggregate expenditures is equal to change in aggregate income then MPC=1.

Formula for MPC:

MPC=Change in Consumption or expenditure/ Change in Income

Given MPC=0.62

0.625=Change in Consumption or expenditure/ (240-200)

Change in Consumption or expenditure=

Change in Consumption or expenditure=$ 25 billion

Since the change in income is $40 billion($240-$200) and Change in aggregate expenditure we calculated above is $25 billion so we need to increase the aggregate expenditure to $15 billion ($40-$25)

to achieve full employment i.e to make MPC to 1.

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