Use the aggregate expenditures model to demonstrate the multiplier effect. How are changes in the MPC, changes in the MPS, and the size of the multiplier related? Answer the following questions: a. What is the multiplier if the MPC is 0? 0.33?0.90?
b. Suppose the equilibrium real GDP is $100 billion and the MPC is 4/5. How much will the equilibrium output change if businesses increase their level of investment by $10 billion?
c. Using the data given in question 5(b), what will be the change in equilibrium real GDP if the MPC equals 2/3? Assume the MPC is 0.90 and autonomous investment
Use the aggregate expenditures model to demonstrate the multiplier effect. How are changes in the MPC, changes in the MPS, and the size of the multiplier related? Answer the following questions: a. What is the multiplier if the MPC is 0? 0.33?0.90?
b. Suppose the equilibrium real GDP is $100 billion and the MPC is 4/5. How much will the equilibrium output change if businesses increase their level of investment by $10 billion?
c. Using the data given in question 5(b), what will be the change in equilibrium real GDP if the MPC equals 2/3? Assume the MPC is 0.90 and autonomous investment increases by $500 billion. What will be the impact on real GDP?
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