Figure 23-3
-Refer to Figure 23-3.Suppose that investment spending increases by $10 million,shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2.If the MPC is 0.9,then what is the change in GDP?
A)$9 million
B)$10 million
C)$90 million
D)$100 million

Question

Figure 23-3 
-Refer to Figure 23-3.Suppose that investment spending increases by $10 million,shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2.If the MPC is 0.9,then what is the change in GDP?
A)$9 million 
B)$10 million 
C)$90 million 
D)$100 million

Quizplus · Accepted Answer

The change in GDP can be calculated using the spending multiplier, which is 1/(1-MPC). With an MPC of 0.9, the multiplier is 10. Therefore, a $10 million increase in investment spending results in a $100 million increase in GDP.

Figure 23-3 -Refer to Figure 23-3.Suppose That Investment Spending Increases by $10