If the marginal propensity to consume (MPC) is 0.8 and there is a desire to increase real GDP by $400 billion, then
A) an increase in autonomous real consumption spending of $100 billion will generate this change.
B) a decrease in autonomous real saving of $400 billion will generate this change.
C) an increase in planned real investment spending of $100 billion will generate this change.
D) an increase in real autonomous spending of $80 billion will generate this change.

Question

Quizplus · Accepted Answer

The formula to determine the change in real GDP is: 
Change in real GDP = Change in autonomous spending / (1-MPC)
Plug in the given MPC of 0.8 and the desired change in real GDP of $400 billion:
$400 billion = Change in autonomous spending / (1-0.8)
Solving for the change in autonomous spending:
Change in autonomous spending = $80 billion
Therefore, an increase in real autonomous spending of $80 billion will generate the desired change in real GDP.

If the Marginal Propensity to Consume (MPC) Is 0