Question

Time Remaining:00:58:37 Sut estion: 1 pt 4 of 20 (0 completo) This Quiz: 20 pts You are given the following data about an economy that has a fixed price level, no imports, and no taxes. Disposable Consumption income expenditure (billions of dollars per year) Calculate the multiplier. The multiplier is 80 100 200 155 230 305 Calculate the increase in real GDP when autonomous spending increases by $5 billion. Why does real GDP increase by more than $5 billion? The increase in real GDP when autonomous spending increases by $5 billion is $_ _billion. Real GDP increases by more than $5 billion because the increase in real GDP increases O A. 20; autonomous expenditure OB. 20; induced consumption expenditure O C. 18; induced consumption consumption OD. 10; income Click to select your answer(s). na tv AO

Answer 1

Option B.

MPC can be calculated as change in consumption expenditure/change in income

MPC= 80-5/100-0

MPC=0.75

Now, expenditure multiplier= 1/1-MPC = 1/0.25

Expenditure multiplier=4

Expenditure multiplier=change in income/change in autonomous expenditure

4= change in real GDP/5

Therefore, change in real GDP = 20

The increase in Real GDP is more than increase in autonomous expenditure due to induced consumption expenditure (the multiplier effect)

Hence, the correct option is B