By how much will GDP change if firms increase their investment by $8 billion and the...

Question

Question

By how much will GDP change if firms increase their investment by $8 billion and the MPC is 0.80? If the MPC is 0.67? LO25.5

Answer 1

Answer #1

Change in GDP = 1/(1-MPC) * change in investment

MPC= 0.8

Change in GDP = 1/(1-0.8) * 8 = 40 billion

MPC= 0.67

Change in GDP = 1/(1-0.67) * 8 = 24.24 billion

Answer 2

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