Question

Troll Island is a small island nation that recently experienced an autonomous change in aggregate expenditures (AE). AE increased by 55 billion, and the marginal propensity to consume on Troll Island is equal to 0.730.73 . What is the change in Troll Island's real GDP after the increase in AE

Answer 1

The real GDP will rise by $203.70 billion

Step-by-step explanation:

Marginal propensity to consume(MPC) = 0.73

Multiplier = 1 / 1 - MPC

Multiplier = 1 / 1 - 0.73

Multiplier = 1 / 0.27

Multiplier = 3.703704

Change in real GDP = Change in autonomous spending * autonomous spending multiplier

Change in real GDP = 55,000,000,000 * 3.703704

Change in real GDP = 203,703,720,000

The real GDP will rise by $203.70 billion