If the marginal propensity to consume is 2/3 and autonomous consumption spending increases by $3 trillion,what is the change in GDP?
A) $3 trillion
B) $1 trillion
C) -$3 trillion
D) $9 trillion
E) -$9 trillion

Question

Quizplus · Accepted Answer

The change in GDP can be calculated using the spending multiplier, which is 1/(1-MPC). With MPC = 2/3, the multiplier is 3. Therefore, the change in GDP is 3 times the increase in autonomous consumption, which is $3 trillion * 3 = $9 trillion.

If the Marginal Propensity to Consume Is 2/3 and Autonomous