Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
By how much will GDP change if firms increase their investment by $12 billion and the MPC is 0
By how much will GDP change if firms increase their investment by $12 billion and the MPC is 0.8?
a.The change in GDP = $_ billion.
b. If the MPC is 0.5? The change in GDP = $ billion
Expert Solution
a.
Step 1: calculate the GDP multiplier
GDP multiplier = 1 / (1 - MPC)
Where:
MPC = Marginal Propensity to Consume = 0.8
Hence:
GDP multiplier = 1 / (1 - 0.8) = 5
Step 2: multiply the GDP multiplier by a change in investment to obtain the change in GDP.
5 * 12 = $60 billion
b.
Step 1: calculate the GDP multiplier
GDP multiplier = 1 / (1 - MPC)
Where:
MPC = Marginal Propensity to Consume = 0.5
Hence:
GDP multiplier = 1 / (1 - 0.5) = 2
Step 2: multiply the GDP multiplier by a change in investment to obtain the change in GDP.
2 * 12 = $24 billion
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
