The following question are based on the following consumption function for a hypothetical economy. Assume autonomous intended investment is $200 billion and there are no government expenditures, exports, or imports.

-If intended investment increases from 200 to 250,GDP will rise by ________ billion.
A) $30
B) $50
C) $83
D) $125
E) $250

Question

The following question are based on the following consumption function for a hypothetical economy. Assume autonomous intended investment is $200 billion and there are no government expenditures, exports, or imports.
 
-If intended investment increases from 200 to 250,GDP will rise by ________ billion.
A) $30 
B) $50 
C) $83 
D) $125 
E) $250

Quizplus · Accepted Answer

The increase in GDP depends on the multiplier effect. If the multiplier is 2.5, then an increase in investment by $50 (from $200 to $250) will increase GDP by $125 billion (50 x 2.5 = 125).

The Following Question Are Based on the Following Consumption Function