Answer: Increase by $400 million.
If the marginal propensity to consume is 0.75, then a $100 increase in investment will result in a maximum increase in equilibrium real gross domestic product can be expected by an increase of $400 million.
Explanation: If the marginal propensity to consume is 0.75, then a $100 increase in investment will result in a maximum increase in equilibrium real gross domestic product can be expected by an increase of $400 million.
This is the extent of the change in the total income that happens along with a change in the government spending by 1 unit. It is calculated as:
by multiplying 1/ (1- MPC),
Where MPC means marginal propensity rate.