Assume that a country is currently producing at a level of output equal to $600 billion. the government decides to increase expenditures by $25 billion, and the nation’s mpc is 0.8. based on the spending multiplier, what is the nation’s new level of total output (in billions of dollars)?

According to the Multiplier Effect, the total output will be the sum of the current output plus the increase in expenditures multiplied by a factor.

The multiplier is given by:
m = 1 / (1 - MPC)
Therefore:
m = 1 / (1 - 0.8) = 1 / 0.2 = 5

Hence, the new total output will be:
600 + 5×25 = 725 billion $