Question

If Investment expenditures increase by $300B and MPC is equal to 0.90, what will be the increase in real GDP?

Answer 1

Answer: 3000B

Explanation:

Firstly, we calculate the spending multiplier which will be:

= 1 / (1 -MPC).

= 1 / ( 1 - 0.9)

= 1 / 0.1

= 10

The increase in the real GDP will then be gotten by multiplying the multiplier by the increase on investment. This will be:

= 10 × 300

= 3000B