If the MPS equals 0.25 and the MPI is 0.15, then an initial change in investment spending of $250 million will result in a total change in equilibrium real GDP of $625 million.

Question

Quizplus · Accepted Answer

The multiplier can be calculated as 1/MPS or 4 in this case. Therefore, an initial change in investment spending of $250 million will result in a total change in equilibrium real GDP of $250 million x 4 = $1000 million.

If the MPS Equals 0