Consider a closed, private economy in which consumption is equal to $500 billion when real gdp is ze

Consider a closed, private economy in which consumption is equal to $500 billion when Real GDP is zero and increases by 75 cents when disposable income increases by $1. Investment is constant for all levels of Real GDP and equal to $200 billion. In this economy, the multiplier is:

lamar1
Asked Feb 23, 2010
Multiplier = 1 / (1 - MPC)
= 1 / (1 - 0.75)
= 1 / 0.25
= 4
shandi
Answered Sep 16, 2012

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