Suppose planned autonomous investment increases by $200 billion and the marginal propensity to consume equals 0.80.What will be the increase in the equilibrium level of real GDP?
A) $160 billion
B) $200 billion
C) $250 billion
D) $1,000 billion

Question

Suppose planned autonomous investment increases by $200 billion and the marginal propensity to consume equals 0.80.What will be the increase in the equilibrium level of real GDP?  
A) $160 billion 
B) $200 billion 
C) $250 billion 
D) $1,000 billion

Quizplus · Accepted Answer

The increase in the equilibrium level of real GDP can be calculated using the multiplier effect formula, which is 1/(1 - MPC), where MPC is the marginal propensity to consume. In this case, MPC = 0.80, so the multiplier is 1/(1 - 0.80) = 5. Therefore, the increase in real GDP = $200 billion * 5 = $1,000 billion.

Suppose Planned Autonomous Investment Increases by $200 Billion and the Marginal