Suppose that an initial $10 billion increase in investment spending expands GDP by $10 billion in the first round of the multiplier process. Also assume that GDP and consumption both rise by $9 billion in the second round of the process.
Instructions: Round your answers to 1 decimal place.
a. What is the MPC in this economy? $________
b. What is the size of the multiplier? _______
c. If, instead, GDP and consumption both rose by $9.5 billion in the second round, what would have been the size of the multiplier? _____