Question

What is the effect on real GDP of a ​$150 billion change in planned investment if the MPC is ​0.65? ​$ nothing billion. ​(Enter your response rounded to the nearest whole​ number.)Consumption $1,200 2,100 3,000 Disposable Income $3,000 4,000 5,000 Given the consumption schedule in the table above, the marginal propensity to consume is:______a. 0.1b. 0.3c. 0.9d. 0.6

Answer 1

Answer and Explanation:

The computation of the effect on real GDP is shown below:

change in GDP is

= Multiplier × change in investment

= 1 ÷ (1 - MPC) × change in investment

= 1 ÷ (1 - 0.65) × $150 billion

= 2  × $150 billion

= $300 billion

And, the marginal propensity to consume is

= Change in spending of consumer ÷ income change

= (2,100 - 1,200) ÷ (4,000 - 3,000)

= 900 ÷ 1,000

= 0.9