If the MPC is .70 and investment increases by $3 billion,the equilibrium GDP will:
A) increase by $10 billion.
B) increase by $2.10 billion.
C) decrease by $4.29 billion.
D) increase by $4.29 billion.

Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC), which is 1/(1-0.70) = 3.33. Therefore, an increase in investment by $3 billion will increase the equilibrium GDP by 3.33 * $3 billion = $10 billion.

If the MPC Is