Homework Answers
MPC (found by AE) = Change in consumption/Change in income =
Change in y axis/Change in x axis = (3200-800)/3200 = 2400/3200 =
0.75
So, MPC = 0.75
According to the multiplier formula,
Change in real GDP/Change in consumption = 1/(1-MPC) = 1/(1-0.75) =
1/0.25 = 4
So, Change in real GDP = Change in consumption*4 = (100*4) =
400
Thus new real GDP = 3200 + 400 = $3600
The new equilibrium real GDP will be $3600
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