If the marginal propensity to save is 0.25 and investment spending increases by $50 billion,the change in real GDP will be $200 billion.

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Quizplus · Accepted Answer

The multiplier effect (1/1-mpc) is 4. If investment spending increases by $50 billion, then the total increase in real GDP will be 4 times that amount, or $200 billion. This assumes that there are no other changes in the economy that would impact the calculation, such as changes in taxes or government spending.

If the Marginal Propensity to Save Is 0