Question

suppose that an initial $40 billion increase in investment spending expands gdp by $40 billion in the first round of the multiplier process. also assume that gdp and consumption both rise by $32 billion in the second round of the process. instructions: round your answers to 1 decimal place. a. what is the mpc in this economy? .8 b. what is the size of the multiplier? c. if, instead, gdp and consumption both rose by $36 billion in the second round, what would have been the size of the multiplier?

Answer 1

The multiplier size is 1 / 0.2, which equals 5, and the MPC in this economy is $32 / $40, which equals 0.8. In the second round, $32 billion, the multiplier is five, and the MPC is 0.8.

What is the GDP?

Gross domestic product, also known as GDP, is a gauge of the size and health of a nation's economy over time (usually one quarter or one year). The size of various economies at various times is also compared using this method.

Calculation:

A. Change in consumption / Change in income equals marginal propensity to consume.

Marginal Consumption Propensity = 24/40

0.6 is the marginal propensity to consume.

B. The factor is 1 divided by (1 - MPC)

The factor equals 1 / 1 - 0.6.

The factor is 2.5.

C. Instead, if after the $40 billion increase GDP and consumption rise by $32 billion, the MPC is equal to $32 / $40 = 0.8.

The Multiplier = 1 / 1 - 0.8 = 5

Learn more about GDP with the help of the given link:

brainly.com/question/26261960

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