Answer:
a) $10 billion
b) <em>For example, the investment made by the business in this question would become income in the hands of other transacting economic agents which in turn be re-spent by them.</em>
Explanation:
<em>Expenditure Multiplier is the amount by which the real GDP will change if autonomous expenditure changes by a given amount. </em>
It is calculated as follows: 1/(1-MPC).
MPC is the portion of additional income that is spent. If the MPC is 0.8, then the expenditure multiplier will be = 1/(1-0.8) = 5
Using the information given, if business investment increase by $2 billion, the resulting change in GDP would be
increase in real GDP = 2 billion × 5 = $10 billion
Explanation of the multiplier change in real GDP
<em>Real GDP increases by more than 2 billion because of the multiplier effect. This effect is implies that expenditures by made by one economic agent in a transaction becomes income in the hand of another which in turn be re-spent . This will continue in manifolds thereby increasing the total value of goods and services resulting from a single increase in autonomous spending in multiple fold.</em>
<em>For example, the investment made by the business in this question would become income in the hands of other transacting economic agents.</em>