Suppose the MPC for a country is 0.92. Due to the multiplier effect, consumption goes up...

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Suppose the MPC for a country is 0.92. Due to the multiplier effect, consumption goes up...

Suppose the MPC for a country is 0.92. Due to the multiplier effect, consumption goes up by $2500. Using the multiplier and the change in consumption being $2500, what is the change in GDP? Show all work.

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Answer 1

Answer #1

If the MPC is 0.92. Then the multiplier will be K = 1/ 1-MPC

1 / 0.08, Multiplier will be 12.5.

If the consumption is $2500 then the total increase in the GDP will be 2500 x 12.5 = 31,250.

Total increase in the GDP will be $31,250.

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Answer 2

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