Figure 12-3
-Refer to Figure 12-3.Suppose that investment spending increases by $10 million,shifting up the aggregate expenditure line and GDP increases from GDP₁ to GDP₂.If the MPC is 0.9,then what is the change in GDP?

Question

Figure 12-3 Figure 12-3 -Refer to Figure 12-3.Suppose that investment spending increases by $10 million,shifting up the aggregate expenditure line and GDP increases from GDP<sub>1</sub> to GDP<sub>2</sub>.If the MPC is 0.9,then what is the change in GDP? A) $9 million B) $10 million C) $90 million D) $100 million

Figure 12-3 -Refer to Figure 12-3.Suppose that investment spending increases by $10 million,shifting up the aggregate expenditure line and GDP increases from GDP<sub>1</sub> to GDP<sub>2</sub>.If the MPC is 0.9,then what is the change in GDP? A) $9 million B) $10 million C) $90 million D) $100 million

-Refer to Figure 12-3.Suppose that investment spending increases by $10 million,shifting up the aggregate expenditure line and GDP increases from GDP₁ to GDP₂.If the MPC is 0.9,then what is the change in GDP?

Quizplus · Accepted Answer

The change in GDP can be calculated using the multiplier effect formula, which is 1/(1-MPC). With an MPC of 0.9, the multiplier is 1/(1-0.9) = 10. Therefore, an initial increase in investment spending of $10 million leads to a total increase in GDP of 10 * $10 million = $100 million.

Figure 12-3 -Refer to Figure 12-3.Suppose That Investment Spending Increases by $10