Assume that the MPC is 0.9 and investment falls by $30 billion.What is the change in real GDP?

Name: Assume that the MPC is 0.9 and investment falls by $30 billion.What is the change in real GDP?
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Quizplus · Accepted Answer

The change in real GDP can be calculated using the multiplier effect formula, which is 1/(1-MPC). With an MPC of 0.9, the multiplier is 1/(1-0.9) = 10. Therefore, a $30 billion decrease in investment would lead to a $300 billion decrease in real GDP (10 * -$30 billion = -$300 billion).

Assume That the MPC Is 0