EBK ECONOMICS
4th Edition
ISBN: 8220101443649
Author: KRUGMAN
Publisher: YUZU
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Question
Chapter 26, Problem 2P
To determine
To determine: The change in GDP in the given situations.
Concept Introduction;
The formula to calculate change in GDP is:
Here,
is autonomous spending. - MPC is marginal propensity to consume.
Autonomous spending: It comprises of given consumption levels, investments made and the purchases made by the government.
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. - MPC is marginal propensity to consume.
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.
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