Answer:
The correct answer is option b.
Explanation:
The marginal propensity to consume is 0.6.
The government will increase its spending by $300 billion.
The overall GDP will increase by the amount of increase in spending times spending multiplier.
Increase in GDP
= [tex]\frac{1}{1-MPC}\ \times\ \Delta G[/tex]
= [tex]\frac{1}{1-0.6}\ \times\ 300[/tex]
= [tex]\frac{1}{0.4}\ \times\ 300[/tex]
= [tex]2.5\ \times\ 300[/tex]
= $750 billion
