Investment increases by $200 million and the value of MPC is 0.75.What would be the total increase in spending?

Question

Quizplus · Accepted Answer

The total increase in spending can be calculated using the multiplier effect formula, which is 1/(1-MPC). Given the MPC is 0.75, the multiplier is 1/(1-0.75) = 4. Therefore, the total increase in spending is 4 times the initial investment increase, which is 4 * $200 million = $800 million.

Investment Increases by $200 Million and the Value of MPC