3. Suppose investment increases by $100 and, as a result, GDP ultimately increases by $300. What does the marginal...

Question

Question

business economics

Answer 1

Answer #1

Investment Multiplier=k=Change in income(GDP)/Change in Investment=300/100=3

We know

k=1/(1-MPC), where MPC is Marginal Propensity to Consume

k*(1-MPC)=1

1-MPC=(1/k)

MPC=1-(1/k)=1-(1/3)=2/3

Correct Option is

b. 2/3

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Answer 2

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