If the MPC = .80, and investment rises from $100 to $150, real GDP will increase by:
A)$50.
B)$125.
C)$20.
D)$250.
E)$200.

Name: If the MPC = .80, and investment rises from $100 to $150, real GDP will increase by: A)$50. B)$125. C)$20. D)$250. E)$200.
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Question

Quizplus · Accepted Answer

The multiplier is calculated as 1/(1-MPC) = 1/(1-0.80) = 5. The change in investment is $50 ($150 - $100). The increase in real GDP is the multiplier times the change in investment: 5 * $50 = $250.