Question

By how much will gdp change if firms increase their investment by $13 billion and the mpc is 0.9?

Answer 1

Change in GDP by $130 billion if firms increase their investment by $13 billion and the mpc is 0.9. This is because GDP change is equal to the expenditure multiplier * investment increase, where the expenditure multiplier = 1/(1-mpc) = 1/(1-0.9) = 10. Therefore, GDP change = 10 * $13 billion = $130 billion.