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Fact 11.3.1
An economy has a fixed price level, no imports, and no income taxes.MPC is 0.5 and real GDP is $200 billion.Businesses incr investment by $2 billion.
-Consider Fact 11.3.1.The increase in real GDP is
A)$2 billion.
B)$404 billion.
C)$1.6 billion.
D)$4 billion.
E)$202 billion.

Question

Quizplus · Accepted Answer

The multiplier for this economy is 2 (1/(1-MPC)). Therefore, the increase in real GDP would be 2 times the increase in investment, which is $4 billion (2 x $2 billion).

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