contestada

Suppose booming economies in the BRIC nations causes net exports to rise by $75 billion in the United States. If the MPC is 0.8 what will be the change in equilibrium GDP

Respuesta :

Answer:

$375 billion

Explanation:

Given: MPC= 0.8

            Net export rises by $75 billion.

There are factors that determine GDP are:

  • Invesntment.
  • Consumption.
  • Government expenditure.
  • Net export.

MPC is marginal propensity to consume, the higher MPC result in higher multiplier, thus there is an increase in GDP, assuming other factor remain constant.

Multiplier= [tex]1\div (1-MPC)[/tex]

First finding the multiplier.

Multiplier= [tex]1\div (1-0.8)[/tex]

⇒ Multiplier= [tex]1\div (0.2)[/tex]

Opening parenthesis.

∴ Multiplier= 5

Now, finding the change in equilibirium GDP due to rise in net export.

Change in equilibirium GDP= [tex]Multiplier\times rise\ in\ net\ export[/tex]

⇒ Change in equilibirium GDP= [tex]5\times \$ 75\ billion[/tex]

∴ Change in equilibirium GDP= [tex]\$ 375\ billion[/tex]

Hence, there will be increase in $375 billion GDP if the MPC is 0.8.

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