Problem
Businesses in the nation of Islandia have been accumulating cash because they have a pessimistic outlook of the national economy. Due to recent changes in the economic outlook of Islandia, business leaders have started investing some of their accumulated cash.
Instructions: Enter your answers as a whole number. Use a positive number to show an increase and a negative number to show a decrease.
1. If buiness leaders invest a total of $10 billion of accumulated cash, what is the maximum expected change in GDP if Islandia's marginal propensity to consume is 0.6?
2. Suppose that the recent economic outlook in the country of Mountainia has been the opposite. Businesses are instead accumulating cash and postponing planned investments. If business leaders postpone $5 billion of planned investment spending, what is the maximum expected change in GDP if Mountainia's marginal propensity to save is 0.2?