If the Marginal Propensity to consume (MPC) is .9, what would be the change in GDP from an investment expenditure increase of $500 be?
1 Answer
Nov 2, 2015
Change in GDP
Explanation:
DeltaY=DeltaI xx k
Where
DeltaY is Change in GDP
DeltaI is Change in Investment
k is multiplier
k=1/(1-MPC)=1/(1-0.9)=1/0.1=10
DeltaI=$500
DeltaY=$500 xx 10=$5000
Change in GDP