Assume the MPC is 2/3.If investment spending increases by $2 billion, the level of GDP will increase by:
A)$3 billion.
B)$2/3 billion.
C)$2 billion.
D)$6 billion.

Question

Quizplus · Accepted Answer

According to the formula for calculating the change in GDP (ΔY) based on a change in autonomous spending (ΔX), ΔY = (1/MPS) x ΔX, where MPS is the marginal propensity to save. Since the MPC is 2/3, the MPS is 1/3. Therefore, ΔY = (1/(1/3)) x 2 = 6 billion. So, if investment spending increases by $2 billion, the level of GDP will increase by $6 billion.

Assume the MPC Is 2/3