Answer:
troll island's real gdp after the increase in ae is 5
Explanation:
MPC = 0.6
MPS= 1- 0.6
Multiplier = 1/1-MPC
=1/1-0.6
(1/1-0.6)*2
=5
Answer:
The change in Troll’s Island real gdp after the increase in ae is 5 billion
Explanation:
In this question, we are asked to calculate the change in Troll’s Island GDP, given that its aggregate expenditure increased by 2 billion and the marginal propensity to consume MPC on Troll Island is 0.6
Firstly, to compute this, we need to calculate the multiplier.
Mathematically,
Multiplier = 1/(1-mpc) or 1/mps
Where mps is marginal propensity to save which is 1-mpc = 1-0.6 = 0.4
Multiplier = 1/0.4 = 2.5
Now, we proceed to calculate the change in GDP
Mathematically, this is equal to multiplier * change in aggregate expenditures = 2.5 * 2 billion = 5 billion
