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Unformatted text preview: . If MPS = 0.2, the multiplier is 1/0.2 [1/(1 MPC)], which is 5. So in equilibrium, change in GDP is multiplier times initial change in aggregate expenditure, i.e. 5 times $80 million which is $400 million. a. GDP will increase immediately by $100 million. NO b. GDP will increase immediately by $80 million. YES c. GDP will decrease immediately by $100 million. NO d. GDP in equilibrium will increase by $400 million. YES e. GDP in equilibrium will increase by $500 million. NO f. GDP in equilibrium will decrease by $500 million. NO...
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This note was uploaded on 05/22/2011 for the course ECO 2013 taught by Professor Denslow during the Spring '05 term at University of Florida.
- Spring '05