Use the following Situation to answer the question : situation 20-1
Assume a closed economy with no government. Suppose that autonomous consumption equals $400, planned investment equals $500, and the mpc equals 0.9.
-Using the information contained in Situation 20-1,if planned investment decreases by $100,the equilibrium aggregate output will change by
A)-$1,000.
B)$-100.
C)$100.
D)$1,000.

Question

Quizplus · Accepted Answer

In a closed economy with no government, the multiplier is 1/(1-mpc), which in this case is 1/(1-0.9) = 10. A decrease in planned investment by $100 leads to a decrease in equilibrium aggregate output by 10 times that amount, which is $1,000.

Use the Following Situation to Answer the Question : Situation