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Natasha2012 [34]
3 years ago
8

Suppose housing prices and stock prices decline significantly and cause autonomous consumption spending to decrease by $200 bill

ion. If the marginal propensity to consume equals 0.50, how much will equilibrium real GDP change
Business
1 answer:
kirill [66]3 years ago
4 0

Answer: The change will be $400 billion.

Explanation: The marginal propensity to consume (MPC) is used to explain that increase in consumption is as a result of increase in income.

To calculate how much the equilibrium real GDP will change:

STEP1: CALCULATE THE MULTIPLIERS

multipliers = 1 ÷ (1 - MPC)

Where MPC = 0.

Therefore;

Multipliers = 1 ÷ (1 - 0.5) = 1 ÷ 0.5

Multipliers = 2

STEP 2: CALCULATE HOW MUCH THE EQUILIBRIUM REAL GDP WILL CHANGE;

Multipliers × change in consumption spending

2 × $200 billion = $400 billion

Equilibrium real GDP will change with $400 billion

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