Question

According to Keynesian theory, if the economy experiences a recessionary gap of $400 billion, and the MPC is .90, by how much will the government need to change spending in order to reach full employment?

A. The government needs to increase spending by $125 billion.

B. The government needs to increase spending by $50 billion.

C. The government needs to increase spending by $40 billion.

D. The government needs to decrease spending by $500 billion.

E. The government needs to increase spending by $400 billion.