Figure 12-3
-Refer to Figure 12-3.Suppose that investment spending decreases by $5 million,decreasing aggregate expenditure and decreasing real GDP from GDP₂ to GDP₁.If the MPC is 0.8,then what is the change in GDP?

Question

Figure 12-3 Figure 12-3 -Refer to Figure 12-3.Suppose that investment spending decreases by $5 million,decreasing aggregate expenditure and decreasing real GDP from GDP<sub>2</sub> to GDP<sub>1</sub>.If the MPC is 0.8,then what is the change in GDP? A) -$4 million B) -$5 million C) -$25 million D) -$40 million

Figure 12-3 -Refer to Figure 12-3.Suppose that investment spending decreases by $5 million,decreasing aggregate expenditure and decreasing real GDP from GDP<sub>2</sub> to GDP<sub>1</sub>.If the MPC is 0.8,then what is the change in GDP? A) -$4 million B) -$5 million C) -$25 million D) -$40 million

-Refer to Figure 12-3.Suppose that investment spending decreases by $5 million,decreasing aggregate expenditure and decreasing real GDP from GDP₂ to GDP₁.If the MPC is 0.8,then what is the change in GDP?

Quizplus · Accepted Answer

The change in GDP can be calculated using the multiplier effect formula: Multiplier = 1/(1-MPC). With an MPC of 0.8, the multiplier is 1/(1-0.8) = 5. Therefore, a $5 million decrease in investment spending leads to a 5 * $5 million = $25 million decrease in GDP.

Figure 12-3 -Refer to Figure 12-3.Suppose That Investment Spending Decreases by $5