Businesses in the United States cut their investment projects by $30 billion.If the MPC is 2, what will be the impact on the national income (Y)?

Question

Quizplus · Accepted Answer

The impact on the national income (Y) is calculated using the multiplier effect, which is 1/(1-MPC). With an MPC of 2, the multiplier would be negative or not applicable in standard economic models, as MPC values should be between 0 and 1. Assuming a typographical error and the MPC is 0.5, the multiplier would be 2. Therefore, a $30 billion cut in investment projects would lead to a $60 billion decrease in national income (Y).

Businesses in the United States Cut Their Investment Projects by $30