Suppose the economy has no income taxes or imports. The MPC equals 0.8. What does the expenditure model predict will be the change in real GDP if investment increases by $200 billion?
What will be an ideal response?
The expenditure multiplier equals , so for the case in the question, the expenditure multiplier equals = = 5.0. The change in real GDP equals the expenditure multiplier multiplied by the change in investment, or 5.0 × $200 billion = $1,000 billion.
You might also like to view...
The demand for Ben & Jerry's ice cream will likely be ________ the demand for dessert.
A. less price elastic than B. more price elastic than C. equally price elastic as D. indeterminate from the given information
A family's summer house on Cape Cod pays a return in the form of
A) interest rate. B) capital gains. C) the pleasure of vacations at the beach. D) stock options. E) capital gains and pleasure.
A good is classified as inferior if
a. consumers buy less when the price rises. b. consumers buy less when income rises. c. consumers buy less when the price falls. d. consumers buy more when income rises.
Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called
a. a resistance price. b. willingness to pay. c. consumer surplus. d. producer surplus.