An economy has a fixed price level, no imports, and no income taxes. MPC is 0.5, and real GDP is $250 billion.
Businesses increase investment by $5 billion.
Calculate the new level of real GDP and explain why real GDP increases by more than $5 billion.
We
D
He
The new level of real GDP is $
billion.
Real GDP increases by more than $5 billion because the increase in investment
A. increases exports
B. induces an increase in consumption expenditure
C. enables firms to produce more output
D. increases the marginal propensity to consume