An economy has a fixed price level, no imports, and no income taxes.MPC is 0.5 and real GDP is $300 billion.Businesses increase investment by $10 billion.The new level of real GDP is
A)$305 billion.
B)$5 billion.
C)$320 billion.
D)$20 billion.
E)$300 billion.

Question

Quizplus · Accepted Answer

The formula for determining the new level of real GDP is: ΔY = (ΔI)/(1-MPC), where ΔY is the change in real GDP, ΔI is the change in investment, and MPC is the marginal propensity to consume. Plugging in the given values, we get: ΔY = (10)/(1-0.5) = 20. Therefore, the new level of real GDP would be $320 billion (the original $300 billion plus the increase of $20 billion from the investment).

An Economy Has a Fixed Price Level, No Imports, and No