Answered

IDNLearn.com: Where your questions meet expert answers and community support. Get prompt and accurate answers to your questions from our experts who are always ready to help.

Suppose that a certain country has an MPC of 0.8 and a real GDP of $400 billion. If its investment spending decreases by $5 billion, what will be its new level of real GDP

Sagot :

Parrainidn

Answer: $375 billion.

Explanation:

Using the MPC, one can calculate a multiplier that shows how much GDP changes when there is a change in investment.

Multiplier = 1 / ( 1 - MPC)

= 1 / (1 - 0.8)

= 1 / (0.2)

= 5

Change in GDP = change in investment spending * multiplier

= -5 billion * 5

= -$25 billion

New level of GDP = 400 - 25

= $375 billion.

Your participation is crucial to us. Keep sharing your knowledge and experiences. Let's create a learning environment that is both enjoyable and beneficial. Your search for answers ends at IDNLearn.com. Thanks for visiting, and we look forward to helping you again soon.