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An economy that is currently in equilibrium and at full employment has an increase in Disposable income of $50 billion. If the marginal propensity to consume is 80%, what will be the increase in real GDP

User Capfer
by
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1 Answer

3 votes

Answer:

$250 billion.

Step-by-step explanation:

The computation in the increase in real GDP is shown below:

Given that

MPC = 80% or 0.80

Income multiplier = 1 ÷ (1 - MPC )

= 1 ÷ (1 -0.80 )

= 1 ÷ 0.20

= 5

Now

The Increase in disposable income is $50 billion

So,

The Increase in real GDP is

= 50 × 5

= $250 billion

We simply applied the above formula so that the correct value could come

And, the same is to be considered

User Tegi
by
8.3k points
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