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olga2289 [7]
3 years ago
8

Suppose that investment demand increases by $300 billion in a closed and private economy (no government or foreign trade). Assum

e further that households have a marginal propensity to consume of 80 percent. Ultimately, how much will aggregate demand increase? Enter your answer in billions. For example if your answer is $600 billion then enter 600. If your answer is $1,500 then enter 1500.
Business
1 answer:
aleksandrvk [35]3 years ago
4 0

Answer:

Aggregate demand increase by $1500 billion.

Answer is 1500

Explanation:

Investment demand increases by $300 billion.

MPC = 0.80

Multiplier = 1 / (1-MPC)

Multiplier = 1 / (1-0.8)

Multiplier = 1 / 0.2

Multiplier = 5

Multiplier = Change in GDP / Change in investment

5 = Change in GDP / $300 billion

Change in GDP = 5 * $300 billion

Change in GDP = $1500 billion.

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