Suppose that the marginal propensity to consume is 0.80 and the government spends $10 million to repair a bridge. Assuming no taxes and no international trade, explain how the $10 million of government spending will increase GDP by $50 million.

Dr Sales Salaries Expense 125,000

Dr Office Salaries Expense 35,000

Cr Social Security Tax Payable 10,200

Cr Medicare Tax Payable 2,550

Cr Federal Income Tax Payable 32,300

Cr Medical Insurance Payable 7,370

Cr Salaries Payable 107,580

B.

Dr payroll Taxes Expense 13,725

Cr Social Security Tax Payable 10,200

Cr Medicare Tax Payable 2,550.

Cr State Unemployment Tax Payable 775

Cr Federal Unemployment Tax Payable 200

Explanation:

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Dr Sales Salaries Expense 125,000

Dr Office Salaries Expense 35,000

Cr Social Security Tax Payable 10,200

Cr Medicare Tax Payable 2,550

Cr Federal Income Tax Payable 32,300

Cr Medical Insurance Payable 7,370

Cr Salaries Payable 107,580

B.

Dr payroll Taxes Expense 13,725

(10,200+2,550+775+200)

Cr Social Security Tax Payable 10,200

Cr Medicare Tax Payable 2,550

Cr State Unemployment Tax Payable 775

(3.1%× 25,000 )

Cr Federal Unemployment Tax Payable 200

(0.8%×25,000)