Homework Answers
First we have to find expenditure multiplier using MPC
Expenditure multiplier = 1/(1-MPC)
MPC=0.8
Expenditure multiplier = 1/(1-0.8) = 1/0.2
expenditure multiplier = 5
to get the value of change in GDP, multiply the expenditure multiplier to the value of change in investment
change in GDP= 5*(-4 billion) = -20 billion
new level of real GDP = current GDP + Change in GDP
= $400 billion - $20 billion
new level of real GDP = $380 billion
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