ECONOMICS
GDP
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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increase by $10 billion.
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decrease by $4.29 billion.
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increase by $2.10 billion.
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increase by $4.29 billion.
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Detailed explanation-1: -70 and investment increases by $3 billion, the equilibrium GDP will: increase by $10 billion.
Detailed explanation-2: -To calculate the maximum change in GDP, use the spending multiplier. The formula for the spending multiplier is 1/MPS or 1/(1-MPC). In the example above, the multiplier would be 5 (1/. 2).
Detailed explanation-3: -The Keynesian condition for the determination of equilibrium real GDP is that Y = AE. This equilibrium condition is denoted in Figure by the diagonal, 45° line, labeled Y = AE. To find the level of equilibrium real national income or GDP, you simply find the intersection of the AE curve with the 45° line.
Detailed explanation-4: -Therefore, the investment multiplier is 2.5.
Detailed explanation-5: -Therefore, it can be seen that if the MPS value is less than the multiplier, value increases and when the value of MPC is more than the investment multiplier becomes more. Therefore, the total increase in income will be 500 Crores.