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?

Question

Figure 23-3 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 GDP<sub>1</sub> to GDP<sub>2</sub>. 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

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 GDP<sub>1</sub> to GDP<sub>2</sub>. 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

-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?

Quizplus · Accepted Answer

The change in GDP is calculated using the multiplier effect. The multiplier is 1/(1-MPC), which is 1/(1-0.9) = 10. Therefore, the change in GDP is 10 times the change in investment spending, which is $10 million * 10 = $100 million.

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