Chapter 11, Problem 5P

To determine

Concept Introduction;

Gross Domestic Product: It is defined as the money value of all finished goods and services that are produced by the normal resident and nonresident of the country inside the boundary of a country usually for one year.

The formula to calculate change in GDP is,

Here,

• is autonomous spending
• MPC is marginal propensity to consume.

Marginal Propensity to Consume ( MPC ): It is defined as the change which occurs in total consumption level due to change in income.

The formula to calculate MPC is,

Here,

• is change in income.
• is change in consumption level.

Multiplier: It is defined as the ratio of total change in gross domestic product due to change in the autonomous spending.

The formula to calculate multiplier is,

Here,

• MPC is marginal propensity to consume.