Respuesta :
Answer:
a) $10 billion
b) For example, the investment made by the business in this question would become income in the hands of other transacting economic agents which in turn be re-spent by them.
Explanation:
Expenditure Multiplier is the amount by which the real GDP will change if autonomous expenditure changes by a given amount.
It is calculated as follows: 1/(1-MPC).
MPC is the portion of additional income that is spent. If the MPC is 0.8, then the expenditure multiplier will be = 1/(1-0.8) = 5
Using the information given, if business investment increase by $2 billion, the resulting change in GDP would be
increase in real GDP = 2 billion × 5 = $10 billion
Explanation of the multiplier change in real GDP
Real GDP increases by more than 2 billion because of the multiplier effect. This effect is implies that expenditures by made by one economic agent in a transaction becomes income in the hand of another which in turn be re-spent . This will continue in manifolds thereby increasing the total value of goods and services resulting from a single increase in autonomous spending in multiple fold.
For example, the investment made by the business in this question would become income in the hands of other transacting economic agents.
GDP increases by $ 10 billion & becomes $160 billion, because of Investment Multiplier
Investment Multiplier :
It states that final change in income is many times the change in initial investment.
Formula : Change in Income / Change in Investment = 1 / (1 - MPC)
Important Given Information :
MPC = 0.8
Increase in Investment = $2 billion
So, Increase in Income = Multiplier x Increase in Income
Multiplier = 1 / (1 - MPC) = 1 / (1 - 0.8) = 1 / 0.2 = 5
Hence, Increase in Income = 5 x $2 billion = $ 10 billion
New Real GDP = Old Income + Increase in Income = $150 billion + $10 billion = $160 billion
To learn more about Investment Multiplier, refer https://brainly.com/question/7580149?referrer=searchResults
