Autonomous planned spending in a country rises by $60 billion when its MPC = 2/3. How much will the equilibrium level of real GDP change according to the aggregate expenditures model with the full potential multiplier effect?
A) It will increase by $120 billion.
B) It will decrease by $90 billion.
C) It will increase by $180 billion.
D) There will be no change in equilibrium real national income.

Question

Quizplus · Accepted Answer

The multiplier effect is calculated as 1/(1-MPC). With an MPC of 2/3, the multiplier is 1/(1-2/3) = 3. Therefore, a $60 billion increase in autonomous spending leads to a $180 billion increase in real GDP (60 billion * 3 = 180 billion).

Autonomous Planned Spending in a Country Rises by $60 Billion