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GrogVix [38]
4 years ago
14

How much of a change in GDP will result if firms increase their level of investment by $8 billion and the MPC is 0.80?

Business
1 answer:
andrezito [222]4 years ago
6 0

Answer:

Change in GDP =   $40 billion

Explanation:

given data

increase investment = $8 billion

MPC = 0.80

to find out

Change in GDP  

solution

we get here Change in GDP that is express as

Change in GDP = Change in Investment ×  Expenditure multiplier    ..............................1

and here Expenditure multiplier = \frac{1}{1-mpc}  

Expenditure multiplier = \frac{1}{1-0.8}  

so here put value in equation 1

Change in GDP =  $8 billion  ×  \frac{1}{1-0.8}

Change in GDP =   $40 billion

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